Is Circle’s USDC Stablecoin in danger after the collapse of SVB?
The March 10 collapse of Silicon Valley Bank (SVB) has sent shockwaves through the crypto industry, leaving many investors concerned about the exposure of major players such as Circle, the issuer of the popular stablecoin USDC. With $3.3 billion, or about 8%, of its reserves held at SVB, Circle now faces heavy redemptions as investors move to payouts.
The USDC stablecoin, which is designed to maintain a link to the US dollar, has seen its value fall across various crypto exchanges amid withdrawals. Some observers have noted “uncharacteristically high volatility” in the price of USDC, as investors rush to pull their money out of the Circle stablecoin.
Adding to the uncertainty, crypto exchange Coinbase has suspended USDC:USD conversions for the weekend, citing the need to wait for banks to reopen. Other top exchanges such as Binance have initiated similar measures, suspending automatic conversions from USDC to other stablecoins due to “market conditions” and the increasing burden of supporting such conversions.
While many investors are understandably nervous about the state of USDC and the broader crypto ecosystem, Circle has sought to instill confidence by stressing that it still has access to multiple banking partners and is actively working to protect the stability of its stablecoin. In a tweet, Dante Disparte, Circle’s chief strategy officer, stated that the firm is “protecting USDC against a black swan failure of the banking system.”
Some industry insiders have expressed optimism that Circle will be able to weather the storm, pointing to the company’s various funding sources and potential options to cover any shortfalls. Adam Cochran, an investor and entrepreneur, noted that Circle could potentially cover the $3.3 billion gap by using interest from its reserves, issuing new shares or taking on venture debt.
Dante Disparte, CSO of Circle, said that Circle protects USDC against a catastrophic event in the US banking system. He warned that if SVB Financial, a major US bank, fails without federal support, it could affect many businesses and entrepreneurs.
Circle has acted quickly to limit its exposure to banks, and the majority of its USDC reserves are held in the Circle Reserve Fund, which invests primarily in short-term US Treasuries and other US banks. Disparte emphasized the need for a well-functioning U.S. banking system to support economic growth, and he called on politicians, regulators, investors, businesses and the public to support this goal.
While the fallout from the SVB collapse is still unfolding, it is clear that the stability of the crypto industry is closely tied to the health of the traditional banking system. As crypto continues to grow and mature, it will be important for investors and companies to remain vigilant and ensure they have robust risk management strategies in place to mitigate potential shocks or disruptions.
