USD Coin (USDC) issuer Circle plans to use “corporate resources” to cover the shortfall on its reserves following Silicon Valley Bank’s shutdown, said the company in a statement on March 11.
According to Circle, USDC liquidity operations will “resume as normal when banks open on Monday morning in the United States,” enabling USDC redemption at 1:1 with the U.S. dollar.
The announcement came after the stablecoin lost its $1 peg on March 11 to trade as low as $0.87 before slowly re-pegging at $0.97 at the time of publication. The stablecoin lost its peg after the disclosure of $3.3 billion of Circle’s reserve at Silicon Valley Bank.
Sharing an Update on USDC and Silicon Valley Bank. https://t.co/Ug3qpot8sJ
— Jeremy Allaire (@jerallaire) March 11, 2023
Silicon Valley is one of the biggest lenders in the United States and a major player for venture-backed companies. The bank was shut down on March 10 by the California Department of Financial Protection and Innovation, fueling fears about its future. The Federal Deposit Insurance Corporation was appointed as the receiver to protect insured deposits.
In the statement, Circle asserted that Silicon Valley is “a venerable and trusted partner to the US innovation economy,” which suffered a “classic bank run, much like those we saw during the financial crisis in 2008. Few traditional banks have sufficient liquidity to withstand such a run.”
SVB suffered significant losses which led to a situation where they were forced to sell long-duration assets to meet redemption demand. The settlement period on these assets caused a short-term liquidity crunch, leading to the FDIC stepping in to administer the bank yesterday. SVB’s fate is being decided this weekend by the FDIC and it’s our hope that they will find a solution that protects customers’ assets 100%.
USDC is the second-biggest stablecoin, with a market cap of over $42 billion as of January 31, serving as collateral for many stablecoin ecosystems. Its depeg had an immediate effect on other stablecoin ecosystems, Cryptox reported earlier today.
This is a developing story, and further information will be added as it becomes available.
