- Circle CEO Jeremy Allaire has assuaged doubts over the backing of its USDC coin
- Allaire explained how the collapses of Silicon Valley Bank and Signature Bank have been mitigated against
- USDC dropped around 12% over the weekend but it is back up near a dollar today
Circle has reassured investors and the crypto community that it isn’t at financial risk following the collapses of Silicon Valley Bank and Signature Bank, resulting in its USDC coin almost restoring parity with the dollar. Circle had been under pressure when it was revealed on Friday that it had $3.3 billion invested in Silicon Valley Bank which was then on the verge of collapse, leading to supposed stablecoin dropping to $0.88, but Circle CEO Jeremy Allaire revealed on Sunday night that a deal had been struck with BNY Mellon to secure all funds and that there was no risk of the company suffering a devastating loss.
Circle Admitted Large Silicon Valley Bank Exposure
Circle revealed on Friday that Silicon Valley Bank was “one of six banking partners Circle uses for managing the ~25% portion of USDC reserves held in cash”, suggesting the company had over $3 billion in assets tied up in the troubled bank. This immediately led to concerns that Circle was going to be a victim of the bank’s collapse, resulting in USDC dropping 12%. Some seized upon this as a simple trading opportunity, speculating that Circle was going to be absolutely fine while others panicked and sold into the drop.
Over the weekend Circle burned 2.7 billion USDC tokens, presumably relating to the lost Silicon Valley Bank investments, while Binance suspended the auto-conversion of USDC to BUSD:
Binance has temporarily suspended auto-conversion of USDC to BUSD due to current market conditions, specifically related to high inflows & the increasing burden to support the conversion.
This is a normal risk-management procedural step to take while we monitor the situation.
— Binance (@binance) March 11, 2023
MakerDAO also suffered, with its DAI stablecoin to the same valuation as USDC given that each DAI is backed over 50% by USDC coins, despite efforts to reduce or even eliminate this exposure. Circle said on Saturday that redemptions were frozen until Monday, which proved to be the peak of the downturn, and Sunday saw both tokens recovering slightly, mainly because no further bad news emerged.
Allaire Allays Fears
Late on Sunday Allaire explained that there was no longer any danger posed to Circle, which pushed the stablecoins back towards $1 again:
Update thread on USDC
We were heartened to see the US government and financial regulators take crucial steps to mitigate risks extending from the fractional banking system.
100% of deposits from SVB are secure and will be available at banking open tomorrow.
— Jeremy Allaire (@jerallaire) March 12, 2023
This is not the first time that stablecoin FUD has led to temporary drops in price, only for them to recover in the hours and days afterwards, and shows that there are still participants in the crypto market that are not quite as seasoned as expected at this point in the bear market.
