After Friday's stunning collapse of Silicon Valley Bank, questions swirled around the exposure of one of crypto's top firms, Circle, the issuer of the second-largest stablecoin, USDC.
In its March attestation, Circle had revealed that part of its $9.88 billion in cash reserves was held at SVB, although it did not disclose the total amount. Following the collapse of SVB, withdrawals from USDC mounted, with the crypto intelligence platform Nansen showing over $1 billion in redemptions from the stablecoin since SVB's shutdown. USDC has a market cap just north of $40 billion.
As USDC lost its $1 peg across different crypto exchanges amid withdrawals, Circle sought to instill confidence, with the company tweeting at 6:50 pm ET that it would continue to operate normally, sharing that SVB was one of the six banking partners it uses for the 25% of its reserves that it keeps in cash, although still not disclosing the amount held at SVB.
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.https://t.co/NU82jnajjY
— Circle (@circle) March 10, 2023
As investors continued to move out of USDC, Binance announced it would be temporarily suspending its auto-conversion policy of USDC to its BUSD stablecoin, citing "market conditions" and describing the action as a "normal risk-management procedural step."
At 10:11 PM ET, Circle offered more clarity, tweeting that $3.3 billion—or around 8%—of its reserves remained at SVB, revealing that wires initiated on Thursday to remove balances from the bank had not been processed.
Dante Disparte, Circle's chief strategy officer, tweeted soon after that Circle was protecting USDC "from a black swan failure in the banking system."
@circle is currently protecting #USDC from a black swan failure in the U.S. banking system. @SVB_Financial is a critical bank in the U.S. economy and its failure - without a Federal rescue plan - will have broader implications for business, banking and entrepreneurs. https://t.co/CYi6Z26ngH
— Dante Disparte (@ddisparte) March 11, 2023
Meanwhile, USDC's peg continued to weaken, with the token trading at $0.92 against tether on Kraken as of 10:40 pm ET. Coinbase announced it would be temporarily pausing conversions from USDC to USD over the weekend while banks are closed, adding that during periods of heightened activity, conversions rely on USD transfers from banks that clear during normal banking hours. Coinbase worked with Circle to create USDC, launching the token in 2018.
After the FDIC placed SVB into receivership on Friday, the weekend will prove an uncertain time as the financial world waits to see if the U.S. government is able to find a buyer for the failed bank or will otherwise backstop losses, with insured deposits only backed up to $250,000. Former Treasury Secretary Lawrence Summers called for depositors to be paid back in full.
While the crypto industry seems to be safe from SVB contagion for now, with much of the sector moving to Signature Bank and other partners in the wake of Wednesday's voluntary liquidation of Silvergate, Circle could prove the exception. The firm is a fundamental cog in the crypto ecosystem, with USDC serving as a crucial on-ramp into crypto for investors globally.
Some onlookers expressed confidence that Circle would be able to weather the storm. The investor Adam Cochran tweeted that Circle could cover a possible $3.3 billion gap from the interest it collects from reserves, a sale share, or other venture debt.
"This is a non-issue in my mind," he wrote.
