Update: After publication and our first update to include Circle’s initial statement regarding USDC’s reserves, the company announced that “3.3 billion of the ~$40 billion of USDC reserves remain at SVB,” or a hair more than a third of the cash the company had previously detailed it held in January. In the wake of the news, USDC depegged from its $1 target, and is currently trading at around 92 cents on the dollar. About half an hour after Circle’s tweet last evening, Coinbase said that it was “temporarily pausing USDC:USD conversions over the weekend while banks are closed,” adding that it planned to “recommence conversions” when banks opened on Monday.
While the startup world digests the shocking implosion of well-known financial institution Silicon Valley Bank, the fallout may extend to the crypto world as well. One stablecoin in particular, USDC, was known as of January 17 to have held some of its backing capital at SVB, funds that are likely now illiquid for several days.
When TechCrunch reached out to Circle, the issuer of USDC, for comment on the state of the stablecoin’s reserves, a spokesperson said, “we’re working on this internally, and I’ll keep you posted when I have a response to share.” It is possible that the company moved cash from SVB before it wasn’t able to Thursday; it is also possible that the company had previously removed funds from the bank since its latest asset disclosures.
A Circle spokesperson said Friday that “Silicon Valley Bank is one of six banking partners Circle uses for managing the approximately 25% portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally.”
According to Circle’s January attestation report, the firm had about $9.88 billion in cash deposited at regulated banks to back its stablecoin’s value, among other assets. The per-bank allocations were not disclosed, but the cash was held at regulated financial institutions like Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank (a division of Flagstar Bank, N.A.), Signature Bank and, most notably, Silicon Valley Bank and Silvergate Bank.
If Circle did have more than a smattering of cash at SVB, concerns could mount that the backing of USDC may no longer be complete and instead be more fractional than is needed for a stablecoin to remain steady.
Two banks that USDC mentioned using, SVB and Silvergate, made headlines this week for separate but similar reasons. SVB was taken over by regulators and shut down on Friday after the bank announced on Wednesday that it lost $1.8 billion on the sale of U.S. treasuries and mortgage-backed securities that it invested in, owing to rising interest rates. Its efforts to raise more capital and reshape its capital profile to bolster its interest income failed to conserve investor and customer confidence in its health.
Silvergate, a publicly traded crypto-friendly financial institution, shared on Wednesday that it would “wind down operations and voluntarily liquidate” its bank division, which some analysts anticipate will cause problems for the larger digital asset ecosystem.
However, last week, Circle said it 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 crypto asset risk exposure 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 $43.5 billion circulating supply and over $6.3 billion in daily traded volume, up 92.33% in the past 24 hours, according to CoinMarketCap data. At the time of publication, USDC held steady at its $1 value.
The stablecoin is pegged to the U.S. dollar on a 1:1 basis and is backed through reserves consisting of a mix of cash and short-term U.S. Treasury bonds. Of that circulating supply about $11.4 billion cash is held at reserve banks as of March 2, Circle’s website states. (Coinbase, which held a total of $2 billion worth of USDC on its books at the end of its fourth quarter in a hybrid of customer and corporate funds, fell 8% today in regular trading.)
It’s also worth noting USDC was launched by Circle and Coinbase in 2018, so it makes sense that Coinbase held a fair amount of it internally.
This story was updated at 4:32 p.m. PT Friday to include a statement from Circle.
FAQs
SVB didn't have the cash on hand to liquidate these deposits because they were tied up in long-term investments. They started selling their bonds at a significant loss, which caused distress to customers and investors. Within 48 hours after disclosing the sale of assets, the bank collapsed.
What is Circle the company that issues USDC? ›
Circle (legally Circle Internet Financial Limited) is a peer-to-peer payments technology company that now manages stablecoin USDC, a cryptocurrency the value of which is pegged to the U.S. dollar. It was founded by Jeremy Allaire and Sean Neville in October 2013. Circle is headquartered in Boston, Massachusetts.
What happened to Silicon Valley Bank FDIC? ›
The FDIC created Silicon Valley Bridge Bank, N.A., following the closure of Silicon Valley Bank by the California Department of Financial Protection and Innovation. All of the deposits and substantially all assets of Silicon Valley Bank were transferred to the bridge bank.
Where are USDC reserves held? ›
USDC is a digital dollar backed 100% by highly liquid cash and cash-equivalent assets and is always redeemable 1:1 for US dollars. The majority of the USDC reserve is held in the Circle Reserve Fund (USDXX), an SEC-registered 2a-7 government money market fund.
What banks are collapsing in 2024? ›
2024 Summary by Month
| Bank Name | Press Release | Closing Date |
|---|
| April Back to Top |
|---|
| Republic First Bank dba Republic Bank, Philadelphia, PA | PR-030-2024 | April 26, 2024 |
Ritesh Kumar, director of procurement and supply chain intelligence at The Smart Cube, details the significant changes brought about by the failure include increased competition in banking deposits between regional and incumbent organisations, smaller banks facing challenges with interest rates and deposits, and real ...
What is the risk of USDC? ›
USDC transactions are not reversible. Once you send USDC to an address, you accept the risk that you may lose access to, and any claim on, that USDC indefinitely or permanently.
Is USDC backed by the US government? ›
USD Coin (USDC) is a stablecoin, a cryptocurrency backed by U.S. dollars or dollar-denominated assets like U.S. Treasury securities. USDC's cash assets are held in segregated accounts with regulated U.S. financial institutions and its reserve portfolio is held at the Bank of New York Mellon.
Is USDC FDIC insured? ›
Coinbase has no right to use any USDC that you hold at Coinbase. Coinbase is not a depository institution, and your USDC balance is not a deposit account. Your USDC balance is not insured by the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation (SIPC).
Are other banks at risk with Silicon Valley Bank? ›
Banks affected were First Republic Bank, PacWest Bancorp, Regions Financial and Zions Bancorporation. Even shares of big banks lost ground in the aftermath of the SVB and Signature collapses, including Wells Fargo, JPMorgan Chase and Citigroup.
America's biggest banks each took a 10-figure hit to their earnings last quarter to cover the cost of bailing out uninsured depositors at Silicon Valley Bank and Signature Bank. Why it matters: Most of the banks took the FDIC's special assessment in stride — their earnings are strong enough to be able to afford it.
How much money is insured by the FDIC if I have $300000 in a savings account and my bank fails? ›
The standard maximum deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The FDIC insures deposits that a person holds in one insured bank separately from any deposits that the person owns in another separately chartered insured bank.
What is the USDC Circle? ›
USDC is a stablecoin created by Coinbase and Circle. Also called USD Coin, it attempts to maintain a constant value relative to the US dollar, though it has occasionally suffered from de-pegging. USDC operates as an ERC-20 token, meaning it runs on the Ethereum blockchain.
Is USDC safe to hold? ›
Yes, USDC is generally considered safer as it is fully collateralized and regulated, whereas USDT is only partially collateralized and lacks regulatory oversight.
Is USDC fully backed? ›
USDC is fully backed by reserve assets
Each USDC is back by one dollar or asset with equivalent fair value, which is held in accounts with US regulated financial institutions.
What was Silicon Valley Bank rated before the collapse? ›
When the financial system collapsed, investors were blindsided, and a cascade of bank runs ensued. Similarly, until its last gasp, SVB enjoyed an A rating — an “upper medium” grade, meaning it was at a low risk, overall, of failing to meet its financial obligations.
What steps did regulators take to address the fallout from Silicon Valley Bank's collapse? ›
The Federal Reserve, the FDIC and the Treasury issued a joint statement that said it would backstop all depositors. “Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
Why did Silvergate Bank collapse? ›
“The problems that faced Silvergate were primarily a result of less-than-adequate risk management, notably one of relying too much on volatile short-term deposits while lending or investing at a longer duration,” Weisberger said.
What was the market cap of Silicon Valley Bank before collapse? ›
SVB's market capitalization was $15.86 billion and its shares were valued at 1.3x book value just two days before regulators closed it March 10. The tech-focused bank had been suffering deposit outflows as venture funding dried up and its core, venture capital-backed customers burned through cash.
