Banks bring systemic risk to crypto, says Circle’s Disparte
Dante Disparte, chief strategy officer and head of global policy at Circle Internet Financial, discussed the systemic risk that the traditional banking system poses to the cryptocurrency industry in an interview for an upcoming Word on the Block episode. Circle is the issuer of USDC, the second largest stablecoin by market capitalization.
Highlighting the problems that crypto companies face due to the lack of trust in banks, Disparte noted that the closure of Silicon Valley Bank (SVB) and Signature Bank, two major lenders to the crypto industry, shows the risk that traditional financial institutions pose to the crypto ecosystem.
“The bank failures in the US have shown that the banks themselves are introducing risk to crypto assets, versus the inherent risk direction of travel, which many of the regulators were concerned about, is that crypto would introduce risk to banking,” Dispart said.
USDC is a dollar-backed stablecoin, meaning it maintains a stable value equal to the US dollar. It currently has a market capitalization of $39.5 billion, making it the fifth largest cryptocurrency.
The USDC broke the dollar peg at the weekend after it was revealed that Circle had USD 3.3 billion in reserve deposits with SVB. USDC fell to as low as $0.8774 before regaining its dollar parity on Monday, according to CoinMarketCap data.
According to Disparte, USDC reserves consist “strictly” of cash and short-dated government bonds, with 80% held in the latter, and that there is no safer asset class.
“The challenge is that the full faith and credit of the underlying banking system, on which it depended, had an incipient risk in it, which was beginning to manifest itself,” he said.
Codependency
However, Disparte said he believes the crypto industry and banks have deep co-dependencies and both could rise together, as many financial institutions are already leveraging blockchain infrastructure for payments and are interested in digital asset custody solutions.
Disparte said Circle has attracted more banks into the crypto sector than most digital asset firms. BNY Mellon is one of Circle’s largest managers, and the company partners with BlackRock to manage the Circle Reserve Fund.
See related article: Bitcoin jumps more than 9% as US acts to protect deposits at crypto-linked banks
“It is not [traditional finance] against [decentralized finance and] it’s not crypto versus traditional banks. It is actually a solid wall of markets, strengthens confidence, protects consumers and ensures, again, that the results in the long run prove that this stress test could have been passed by both traditional financial firms and companies like Circle.” Disparte said.
Disparte said Circle is prepared to meet redemption demands, but acknowledged the need to mint new USDC to provide a digital form of dollars that investors can hold to protect against financial risks.
“All of these risks are beginning to accrue to the urgency of lawmakers, policymakers and regulators to start protecting consumers at the whole government level, as opposed to relying on this patchwork approach that we have in the United States to regulate this industry.”
