Circle reveals it has $3.3 billion tied up in Silicon Valley Bank as USDC lurches toward the link.
Jeremy Allaire, CEO of Circle Stefani Reynolds—Getty Images
After Friday’s stunning collapse of Silicon Valley Bank, questions swirled about the exposure of one of crypto’s top firms, Circle, the issuer of the second largest stablecoin, USDC.
In its March filing, Circle had disclosed that part of its $9.88 billion in cash was held at SVB, although it did not disclose the total amount. Following the collapse of SVB, withdrawals from USDC increased, with crypto intelligence platform Nansen showing over $1 billion in stablecoin redemptions since SVB’s shutdown. USDC has a market capitalization just north of $40 billion.
When USDC lost its $1 peg across various crypto exchanges during withdrawals, Circle sought to instill confidence, and the company tweeted at 6:50 PM ET that it would continue to operate as normal, sharing that SVB was one of the six banking partners it uses for the 25% of reserves that it holds in cash, although it still does not disclose the amount held at SVB.
Silicon Valley Bank is one of six banking partners that Circle uses to manage the ~25% portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will affect depositors, Circle & USDC continue to operate as normal.https://t.co/NU82jnajjY
— Circle (@circle) March 10, 2023
As investors continued to move out of USDC, Binance became announced it would temporarily suspend its auto-conversion policy for USDC to its BUSD stablecoin, citing “market conditions” and describing the action as a “normal procedural step for risk management.”
At 10:11 p.m. ET, Circle provided more clarity, tweeting that $3.3 billion — or about 8% — of its reserves remained with SVB, revealing that transfers initiated on Thursday to remove balances from the bank had not been processed.
Dante Disparte, Circle’s chief strategy officer, tweeted shortly after Circle protected USDC “from a black swan failure of the banking system.”
@circle currently protecting #USDC from a black swan failure in the US banking system. @SVB_Financial is a critical bank in the American economy, and its failure—without a federal bailout—would have broader implications for business, banking, and entrepreneurs. https://t.co/CYi6Z26ngH
— Dante Disparte (@ddisparte) March 11, 2023
Meanwhile, USDC’s peg continued to weaken, with the token trade to $0.92 per tether on Kraken as of 10:40 PM ET. Coin base announced there would be a temporary pause in conversions from USDC to USD over the weekend while banks are closed, adding that during periods of increased activity, conversions rely on USD transfers from banks that clear during normal banking hours. Coinbase worked with Circle to create USDC, and launched the token in 2018.
After the FDIC placed SVB into receivership on Friday, the weekend will prove to be an uncertain time as the financial world waits to see whether the US government is able to find a buyer for the failed bank or otherwise stem losses, with only insured deposits backed up to $250,000. Former Treasury Secretary Lawrence Summers called for depositors to be repaid in full.
While the crypto industry appears to be safe from SVB contagion for now, with much of the sector moving to Signature Bank and other partners in the wake of Wednesday’s voluntary liquidation of Silvergate, Circle may prove the exception. The firm is a fundamental cog in the crypto ecosystem, with USDC being a crucial entry point into crypto for investors globally.
Some onlookers expressed confidence that Circle would weather the storm. The investor Adam Cochran tweeted that Circle could cover a possible $3.3 billion gap from the interest it collects from reserves, a sales stake or other venture debt.
“This is a non-issue in my mind,” he wrote.
