L Misthos and M Bacina
Mar 13, 20232 min
Updated: Mar 16, 2023
Circle, the operator of the USDC stablecoin and a peer-to-peer payments company, has faced the impact of Silicon Valley Bank's (SVB) collapse over the weekend. The challenge started when SVB clients rushed to withdraw funds after the bank announced that it had sold around USD$21 billion in assets to strengthen its financial position, suffered a significant loss in doing so and would be seeing to raise capital to cover the shortfall.
With a bank run worsening, the California Department of Financial Protection and Innovation, working with US Federal Government, shut down the bank and appointed the Federal Deposit Insurance Corporation as receiver to protect insured deposits (and subsequently uninsured deposits have been confirmed to be covered).
SVB was a 20 banks in the United States, serving venture capitalists, start-ups and many of the world's fastest growing tech companies. Soon after the collapse, Circle disclosed that approximately USD$3.3 billion of its USD$40 billion USDC reserves were tied up in SVB, and could not be accessed.
This compounds Circle and USDC's exposure to bank fallouts, having recently released an audit outlining $USD8.6 billion of its USDC reserves were held in several financial institutions, including the bankrupted Silvergate and SVB.
Circle CEO Jeremy Allaire explained the situation via Twitter:
Once the news broke about SBV, Circle's USDC de-pegged on crypo markets and lost over 10% of its value at one point. Other stablecoins including DAI, USDD and FRAX all de-pegged as well as trading grew in intensity. Thankfully, this contagion from the traditional financial system resolved with the bailout announced today, and USDC has nearly recovered it's peg:
It is critical to note that this situation was not due to any cryptoasset related issue, but was a traditional bank run, a failure not seen in the US for many years.