Uncertainty surrounds the billion-dollar USDC empire as issuer Circle held reserves with Silicon Valley Bank

Update: Following publication and our first update with Circle’s initial statement on USDC reserves, the company announced that “3.3 billion of ~$40 billion in USDC reserves will remain with SVB,” or a hair over a third of the money the company had previously described it was held in January. In the wake of the news, USDC has broken away from its $1 target and is currently trading at around 92 cents on the dollar. About half an hour after Circle’s tweet last night, Coinbase said it was “temporarily pausing USDC:USD conversions over the weekend while banks were closed,” adding that it planned to “resume conversions” when banks opened on Monday. .

As the startup world processes the shocking implosion of the well-known financial institution Silicon Valley Bank, the fallout may extend to the crypto world as well. One stablecoin in particular, USDC, was known on January 17 to have held some of its support capital with SVB, funds that are now likely to be illiquid for several days.

When CoinTech reached out to Circle, USDC’s publisher, for comment on the state of stablecoin reserves, a spokesperson said, “We’re working on this internally and I’ll update you when I have a response to share. It’s possible the company transferred cash from SVB before it couldn’t on Thursday; it is also possible that the company had previously removed money from the bank since the latest asset disclosures.

A Circle spokesperson said Friday that “Silicon Valley Bank is one of six banking partners that Circle uses to manage the approximately 25% share of USDC’s cash reserves. While we await clarity on the impact of SVB’s FDIC receivership on its savers, Circle & USDC will continue to operate as normal.”

According to Circle’s January attestation report, the company had deposited approximately $9.88 billion in cash with regulated banks to back the value of the stablecoin, among other things. Bank allocations were not disclosed, but funds were held with regulated financial institutions such as Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank (a division of Flagstar Bank, NA), Signature Bank and, with notably Silicon Valley Bank and Silvergate Bank.

If Circle had more than a few cash at SVB, concerns could increase that USDC’s support may no longer be complete and instead be more fractional than necessary to keep a stablecoin stable.

Two banks that USDC said it uses, SVB and Silvergate, made headlines this week for different but similar reasons. SVB was taken over by regulators and closed on Friday after the bank announced on Wednesday that it lost $1.8 billion on sales of US Treasury bonds and mortgage-backed securities it invested in, due to rising interest rates. His efforts to raise more capital and reshape his capital profile to bolster his interest income failed to maintain investor and client confidence in his health.

Silvergate, a publicly traded crypto-friendly financial institution, shared on Wednesday that it would “wind down and voluntarily liquidate” its banking division, which some analysts expect will spell trouble for the larger digital asset ecosystem.

Last week, however, Circle said it had moved “the small percentage of USDC reserve deposits held at Silvergate” to other banking partners. “This process of winding down our relationship with Silvergate began last year as signs of trouble and broader exposure to crypto asset risk became increasingly apparent.” This could limit the stablecoin’s potential risk to unstable banking partners.

USDC is the second-largest stablecoin by market capitalization with a circulating supply of $43.5 billion and more than $6.3 billion in daily traded volume, up 92.33% in the past 24 hours, according to data from CoinMarketCap . At the time of publication, USDC remained stable at its $1 value.

The stablecoin is pegged 1:1 to the US dollar and backed by reserves consisting of a mix of cash and short-term US government bonds. Of that circulating inventory, about $11.4 billion in cash is held in reserve banks as of March 2, according to Circle’s website. (Coinbase, which had a total of $2 billion USDC on its books in a hybrid of customer and corporate funds at the end of the fourth quarter, was down 8% in regular trading today.)

It’s also worth noting that USDC was launched in 2018 by Circle and Coinbase, so it makes sense that Coinbase had its fair share of it.

This story was updated Friday at 4:32 PM PT with a statement from Circle.

Learn more about SVB's 2023 collapse on CoinTech

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