USDC Depeg: Circle’s $43 Billion Stablecoin in the Spotlight as Silicon Valley Bank’s Exposure Revealed – Here’s the Latest

The stablecoin USD Coin (USDC) has moved away from its expected peg of $1 following the revelation that Circle has exposure to the now-collapsed Silicon Valley Bank.

Circle, the issuer of the world’s second-largest USDC stablecoin, said in a tweet on Friday that it had $3.3 billion of its $40 billion in USDC reserves at the deposed lender. The company said it made wire transfer requests on Thursday, but they weren’t completed by the end of the day Friday.

“Following confirmation late today that transfers initiated Thursday to clear balances have not yet been processed, $3.3 billion of the ~$40 billion in USDC reserves remain with SVB.”

The company’s stablecoin has been hit with buybacks following the news as concerns about its reserve grow. According to blockchain analytics firm Nansen, the stablecoin burned some $2.34 billion worth of USDC on Friday, taking the tokens out of circulation as investors bought back dollars.

The wave of pullbacks put some pressure on the USDC’s dollar peg, pushing it away from the expected $1. According to data from crypto aggregator CoinMarketCap, the price of the stablecoin slipped to an all-time low of around $0.8774 on Saturday.

However, the USDC price has since pared some losses. Currently, the stablecoin is trading at around $0.919, down around 8% over the past day.

Silicon Valley Bank, one of the most popular lenders to Silicon Valley tech and growth startups, filed for bankruptcy on March 10, falling into the hands of the Federal Deposit Insurance Corporation (FDIC). On Friday, the federal agency took control of the bank and created the National Deposit Insurance Bank of Santa Clara, which now holds SVB’s insured deposits.

“Silicon Valley Bank, Santa Clara, Calif., was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver,” the federal agency said in a statement. Friday press release.

Besides Circle, many other crypto companies have also disclosed their exposure to the bank. As reported, failed crypto lender BlockFi has $227 million in uninsured funds locked in an account managed by the failed lender.

Additionally, crypto-focused venture capital firm Pantera may also have unknown exposure to SVB’s collapse. As recently as last month, the company counted the failed bank among just three custodians of its private funds, according to a Feb. 3 filing with the SEC.

The Avalanche Foundation, which supports the Avalanche blockchain, Yuga Labs, the entity behind the Bored Ape Yacht Club NFT project and other top collections, and Web3 Proof are other cryptography that were hit hard by the recent Silicon Valley Bank bankruptcy.

Circle is probably still in good shape

Despite the recent pressure on the USDC, which caused it to lose its peg, the stablecoin is likely still in good shape. According to an audit carried out by Deloitte, a leading analysis and audit company, Circle holds 77% of its reserves in Treasury bonds (Bills) ranging from four weeks to 28 weeks.

These Treasuries are held at BNY Mellon and managed by BlackRock, the world’s largest asset manager. Apparently, this alone provides an absolute floor on USDC of $0.77, according to analysis by Hal Press, founder of digital asset investment platform North Rock Digital.

The crypto proponent further noted that the other banks Circle used to hold its cash reserves, including Citizens Trust Bank, Customers Bank, New York Community Bank (a division of Flagstar Bank, NA) and Signature Bank, were apparently going to GOOD.

Even in the worst-case scenario, Circle holders should be able to cash out every USDC token for at least $0.93, Press said. “Overall, even if we assume that every bank they hold money in fails and returns in the worst case 70% of the money via the sale of USDC assets would still be worth 93c.”