Crypto Shaken as SVB Exposure Depegs $37 Billion Stablecoin
(Bloomberg) — Crypto’s second-largest stablecoin fell from its intended $1 peg on Saturday, trading as low as 81.5 cents, hurt by exposure to issuer Circle Internet Financial Ltd. for the collapsed Silicon Valley Bank.
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The USD Coin, or USDC, is a key plank of crypto markets and is intended to maintain a constant $1 value, fully backed by reserves of cash and short-dated government bonds. But $3.3 billion of the roughly $40 billion in stock is with Silicon Valley Bank, which just became one of the biggest U.S. bank failures in recent history.
Regulators seized the bank on Friday, and investors are waiting for more clarity on the return of deposits. In that vacuum, USDC fell below $1, trading at about 92 cents at 9:02 a.m. in London on Saturday. Less stable coins like DAI and Pax Dollar also fell off their pegs, a sign of greater nervousness.
Concerns have so far not spread to top stablecoin Tether, which held at $1. Tether has previously come under scrutiny over its reserves. Broader crypto markets are having a painful week and were on the back foot Saturday: Bitcoin oscillated between gains and losses, while smaller tokens such as Solana and Avalanche were in the red.
Circle’s Chief Strategy Officer Dante Disparte described the fall of Silicon Valley Bank as a “black swan failure” in the US financial system, saying in a tweet that without a federal bailout it would have “broader implications for business, banking and entrepreneurs.”
USDC has a circulating supply of about 41 billion tokens and a market cap of roughly $37 billion, CoinGecko data shows. A net $2 billion USDC was redeemed in the past 24 hours, according to blockchain research firm Nansen. Data compiled by Bloomberg indicated USDC was trading as low as 81.5 cents.
Coinbase’s Step
Stablecoins like USDC are meant to hold a fixed value against another highly liquid asset like the US dollar. They come in a variety of forms, and some, like Circles, are backed by reserves of cash and bonds. Investors often park funds in stablecoins when moving between crypto trades.
As the selloff in USDC worsened, US-based crypto exchange Coinbase Global Inc. said it would “temporarily pause” the conversion of USDC into US dollars over the weekend and will resume on Monday when banks open.
The fall in USDC has had a knock-on effect on decentralized finance applications that allow users to trade, borrow and lend coins and which tend to rely heavily on trading pairs involving stablecoins.
“Unless there is a concrete rescue plan this weekend, I think the markets will be ugly again next week,” Teong Hng, CEO of crypto investment firm Satori Research, said of SVB’s failure.
Crypto’s Misery
The crypto sector was already falling after a protracted rout that has hit $2 trillion off the value of digital assets since November 2021, sparking a series of implosions such as the TerraUSD stablecoin, Three Arrows Capital hedge fund and the FTX exchange.
The TerraUSD token – known as UST – tried to use a mix of algorithms and trading incentives involving a sister token, Luna, to hold its value. The $60 billion wipeout of this system intensified global regulatory scrutiny of stablecoins.
“I think the market priced USDC in panic like it priced USDT around the Luna collapse,” said Haohan Xu, CEO of Apifiny, an institutional trading platform. “It’s driven by Circle’s exposure at SVB plus Coinbase shutting down its USDC conversion feature.”
Trying to calm down
Crypto firms including Binance and Tether took to Twitter on Friday to try to reassure their customers of any risk posed by the failed bank.
Changpeng Zhao, CEO of Binance, the largest digital asset exchange, tweeted that the firm has no exposure and that the funds are safe.
Paxos Trust Co., issuer of the Pax Dollar, and crypto exchange Gemini said they have no relationship with the bank, according to statements on their official Twitter accounts. Tether’s Chief Technology Officer Paolo Ardoino said in a tweet that the largest stablecoin has no exposure to SVB.
By contrast, bankrupt crypto lender BlockFi has about $227 million in an account at the failed bank, according to a lawsuit.
–With assistance from David Pan.
(Updates market prices in fourth paragraph. An earlier version of this story corrected the TerraUSD acronym in paragraph 12 to UST.)
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