Early on Saturday, stablecoin USD Coin (USDC) lost its 1:1 peg to the dollar and fell as low as $0.88 after Circle, the coin’s issuer, revealed that some of the assets behind it were stored at Silicon Valley Bank (SVB).
The price of the stablecoin USDC fell almost 10% when the cryptocurrency firm revealed it had $3.3 billion of its $40 billion reserves in the bank, prompting investors to immediately withdraw their funds from the crypto asset.
As USDC fell to a record low over the weekend, it began to rally late Sunday, trading for $0.991021 on CoinGecko at press time.
The USDC de-pegging also affected other stablecoins, including DAI, USD Digital (USDD), y Fractional Algorithmic Stablecoin (FRAX).
DAI lost 7.4% of its value, down to $0.897, as around 51% of its assets were in USDC. FRAX also fell to $0.885. Fortunately for Tether (USDT), it was able to hold its parity and even rally to around $1.08 amid the fiasco.
CAN USDC LOSE ITS LINK TO THE DOLLAR AGAIN?
Investors and traders may wonder, despite the relatively positive news that has emerged since Sunday, “Will USDC lose its peg to the dollar again in the next few days?» Market players specifically fear that the coin could end up like Terra’s UST.
First of all, the FDIC has already been authorized to take steps to safeguard Silicon Valley Bank depositors, according to the US Federal Reserve. The government offered to support all depositors without using taxpayer funds when it announced emergency measures on Sunday night to prevent the bank’s collapse from spreading.
This was likely due to the 3,500 CEOs and founders who signed a petition over the weekend pleading with US Treasury Secretary Janet Yellen and regulators to support depositors and warn that more than 100,000 jobs job may be in jeopardy.
Meanwhile, Circle also revealed that the USDC stablecoin is 100% collateralized with a mix of cash and US Treasuries. It stated that it is currently 77% ($32.4B) collateralized with US Treasuries and 23% ($9.7B) with cash held in a “variety of institutions«, of which SVB is only one.
«Silicon Valley Bank is one of six banking partners Circle uses to manage the ~25% portion of USDC reserves held in cash“Circle maintained in a tweet on March 11.
Silicon Valley Bank is one of six banking partners Circle uses for managing the ~25% portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally.
— Circle (@circle) March 10, 2023
CIRCLE WILL COVER ANY DEFICITS WITH CORPORATE FUNDS.
The good news is that Circle has additional reserves in addition to those caught with SVB, so this issue is unlikely to cause USDC to drop to zero or even lower in the coming days. With only about 8% of reserves affected, the USDC stablecoin is likely to recover soon and finally maintain full peg to the dollar.
Notably, Circle stated that it is optimistic about the recovery of its $3.3 billion thanks to the FDIC’s acquisition of the failing bank. Although SVB may not return 100% and any return may take some time, Circle has committed to cover any shortfalls using internal resourcespossibly even with the help of external funds.