Traders fetch $3 billion from crypto stablecoin USDC in three days
Traders have pulled a net $3 billion from cryptostablecoin USDC over the past three days as fallout from the failure of Silicon Valley Bank spreads to the digital asset market.
In a blog post late Wednesday, Circle, the operator of USDC, said it had cleared “substantially all” of the backlog of minting and redemption requests related to USDC in recent days. A total of $3.8 billion of tokens were redeemed by investors since the weekend, and it had minted $0.8 billion of new coins, it added.
The withdrawals, which represent nearly 10 percent of the stablecoin’s total circulating supply, came after US-based Circle said it had $3.3 billion trapped at SVB. The bank was one of the main US banks used by crypto companies as a conduit for payments between crypto and sovereign money, and custody of assets.
Circle’s USD coin is one of the hubs for trading in digital asset markets. A stablecoin helps connect traditional and crypto markets, and traders use them as cash or a store of value between crypto trades. USDC usually tracks the value of the dollar one-to-one, but traded as low as 88 cents after Circle admitted its exposure to SVB.
The price rose and it regained its dollar peg after the US authorities moved to establish a bailout for SVB’s depositors, which indirectly boosted confidence in the crypto markets. CEO Jeremy Allaire also said that Circle would “stand behind” the token and cover any shortfalls using the company’s resources, including external capital if necessary.
“The decision by US regulators to repay Silicon Valley Bank’s unsecured deposits in full allowed the USDC price to recover,” said Cristiano Ventricelli, an analyst at Moody’s, the credit rating agency. “Otherwise, USDC could have suffered a run and been forced to liquidate its assets.”
Circle has rushed to move the rest of the cash deposits for its reserves to other banks as turmoil spread through the banking sector.
Of the USD 9.7 billion in cash, USD 3.3 billion was with SVB. Last week, Circle moved $5.4 billion to US custodian bank BNY Mellon. Another $1 billion was held at Customers Bank, a small Pennsylvania-based bank. Shares in clients have fallen by a fifth in the past week on jitters in the US banking sector.
“I understand the drive to scale, it’s the idea that these banks are too big to fail and if something goes wrong the US government will stand behind them,” said Varun Paul, director of market infrastructure at blockchain platform Fireblocks, who previously has spent 14 years at the Bank of England. “That might end up being true, it’s just not an ideal situation.”
A person familiar with the matter said the company was “comfortable” having moved the majority of its cash holdings to BNY Mellon “for the foreseeable future”.
SVB’s collapse also followed the demise of two other crypto-friendly banks in Signature and Silvergate, and represented a blow to the industry’s already thin access to the established banking system.
“It could have ended much worse than it did, some prices have gone back, but this just shows how the second largest stable coin is not stable, and it’s very ironic,” said Larisa Yarovaya, deputy head of the Center for Digital Finance at Southampton Business School.
