USDC, the second largest stablecoin from Circle Internet Finance which has a $42 billion market valuation, has de-pegged from the dollar as a result of the Silicon Valley Bank collapse.
The price of the USDC/USDT trading pair on Coinbase fell as low as $0.94, marking its lowest level since April 2021. At the time of writing this report on Saturday, it had rebounded to approximately $0.95.
Concerns over the effects of Silicon Valley Bank’s bankruptcy caused USDC to decline from $1 on Friday, even though it is intended to retain a 1-to-1 peg with the U.S. dollar.
More details: Concerns have been raised that the funds backing such stablecoin are currently frozen because an undetermined percentage of USDC’s currency reserves is parked at the now-defunct bank. The cornerstone of the cryptocurrency business is built on stablecoins like USDC, therefore when they deviate significantly from $1 (or another fiat currency) it raises questions about their stability.
To support the value of USDC, the company retained $9.88 billion in cash deposited at regulated institutions, according to Circle’s January reserve report. On March 10, $11.1 billion in cash contributions were made into the reserves, according to Circle’s website.
The California-based bank Silicon Valley Bank (SVB), which was taken over by regulators and shut down on Friday, was one of USDC’s banking partners.
Bank of New York Mellon, Citizens Trust Bank, Consumers Bank, New York Community Bank (a branch of Flagstar Bank, N.A.), Signature Bank, Silicon Valley Bank, and Silvergate Bank are all banks that held USDC for Circle. Moreover, Circle maintains a portion of its USDC reserves in a specific BlackRock fund.
What you should know: Circle announced last week that it had severed relations with Silvergate Bank, the cryptocurrency-friendly bank that shut down operations and announced earlier this week that it would “voluntarily liquidate” its assets.
Shares of Signature Bank Holding Company (SI) have decreased 12% since the announcement of SVB’s closure. In December, Signature announced that it will take up to $10 billion from its deposits related to cryptocurrency companies.
Binance and Coinbase, two prominent cryptocurrency exchanges, both announced on Friday night that they will temporarily halt USDC conversions while the ripple effects of Silicon Valley Bank’s failure are being felt.
Concerns that Circle, the entity that created the USDC stablecoin, might have kept some of USDC’s cash reserves at Silicon Valley Bank, which California’s financial watchdog shut down on Friday, prompted the steps. (Centre, a joint venture between Coinbase and Circle, launched USDC at first.