(Bloomberg) – The fallout from the failure of the Silicon Valley Bank has had a deeper impact on cryptocurrencies, taking away an important cog in a market that is considered one of the safest digital assets. the best in space. The second largest stablecoin, USD Coin, was trading as low as 81.5 cents as investors understood the issuer Circle Internet Financial Ltd. exposed Silicon Valley Bank, which had just collapsed in one of the biggest failures in US banking history.
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Late Friday, after hours of silence, Circle revealed that $3.3 billion of its roughly $40 billion stockpile was held at the failed bank. On Saturday afternoon, CEO Jeremy Allaire provided more details on Circle’s relationship with the bank, saying in a statement on the company blog and in tweets that USDC is “collateralized.” 100% in a combination of cash and US Treasuries” and will remain “for 1 for 1” in US dollars. The price of USDC rose on the statement, trading around 97 cents at 3:45 p.m. EST in New York.
“Specifically, USDC is currently collateralized 77% ($32.4 billion) in US Treasury Bills (with maturities of three months or less) and 23% ($9.7 billion) in cash is held at multiple institutions, of which SVB is just one,” according to the blog post. Circle’s treasury is kept at BNY Mellon and is managed by BlackRock.
Most of its cash reserves are held at BNY Mellon; Circle said it deposited $5.4 billion there in the last week. The stablecoin company previously revealed that its cash reserves are held at six banks, including BNY Mellon and Silicon Valley Bank, but before Friday did not provide specific amounts for the allocations. single.
USD Coin, or USDC, is an asset-backed stablecoin and a widely used plank in the crypto market. The token is intended to hold a constant $1 value, fully backed by cash reserves and short-term Treasuries.
CoinGecko data shows that USDC has a circulating supply of 39.7 billion tokens as of Saturday afternoon in New York. Billions of dollars worth of tokens have been bought back by traders since Friday, some of whom have exchanged their holdings for Tether’s USDT stablecoin, data from the Nansen and Curve Financial programs.
As for Circle’s larger rival, the leading stablecoin Tether has held steady at $1 or more. Although Tether has previously faced scrutiny over its reserves, on Friday, Tether said that it does not have any exposure to SVB.
In earlier tweets, Dante Disparte, Circle’s Chief Strategy Officer, described the collapse of the Silicon Valley Bank as a “black swan failure” in the US financial system, saying otherwise A federal bailout plan would have “broader implications for businesses, banks and entrepreneurs. “
Coinbase’s Move
Stablecoins like USDC aim to hold a fixed value relative to another highly liquid asset like the US dollar. They come in various forms and some, like Circle’s, are backed by cash and bond reserves. Investors typically deposit funds into stablecoins as they move between crypto exchanges.
As the USDC sell-off worsened Friday night, US-based crypto exchange Coinbase Global Inc. said it will “pause” USDC to US dollar conversions over the weekend and will resume Monday when banks open. “Your assets remain safe and available for deposit on-chain,” the crypto exchange said in a tweet from an official account.
In its statement on Saturday, Circle acknowledged that while “USDC can be used 24/7/365 on-chain,” any stablecoin issuance and redemption “is limited by business hours.” the US banking system.”
USDC futures trading shows optimism Circle will weather the current predicament. Data from research firm Coinglass shows that funding rates for USDC contracts on at least one exchange turned positive Saturday morning in New York, showing that traders are betting on the future. dollar recovery. When the funding rate is positive, long positions pay for short positions, reflecting bullish sentiment from traders about the token’s price.
Oliver von Landsberg-Sadie, co-founder of BCB Group, which runs a payments network for crypto companies, said: “USDC will be fine, it’s resilient and well regulated, with a structure capital is stronger than most banks. email.
Meanwhile, the drop in USDC has had a knock-on effect on DeFi applications that allow users to trade, borrow, and lend coins and tend to rely heavily on stablecoin-related trading pairs. On Saturday, members of the DeFi community that run DAI proposed changes to the mechanism that would help keep its stablecoin pegged to $1 in a way that could reduce exposure to USDC.
“Unless there is a concrete relief plan by the end of this week, I think the market will turn bad again next week,” said Teong Hng, managing director of crypto investment firm Satori Research. next”.
The woes of cryptocurrencies
The crypto sector has been reeling from a protracted recession that has wiped $2 trillion off the value of digital assets since November 2021, leading to a series of explosions like the stablecoin TerraUSD according to Cointelegraph. algorithm, hedge fund Three Arrows Capital and exchange FTX.
The TerraUSD token — known as UST — attempted to use a combination of algorithms and trader incentives associated with its sister token, Luna, to hold its value. That system’s $60 billion write-off has increased global regulatory scrutiny of stablecoins.
“I think the USDC ‘price panic’ market is like it was pricing USDT around the demise of Luna,” said Haohan Xu, managing director of Apifany, an institutional trading platform. “It was driven by Circle’s arrival at SVB plus Coinbase shutting down its USDC conversion function.”
Try to reassure
Cryptocurrency firms including Binance and Gemini on Friday used Twitter to try to reassure their customers of any risks posed by SVB.
Changpeng Zhao, the chief executive officer of Binance, the largest digital asset exchange, tweeted that the company is not taking any risks and that their funds are safe. Paxos Trust Co., the issuer of Pax Dollar, and crypto exchange Gemini said they have no relationship with the bank, according to a statement on their official Twitter account.
In contrast, bankrupt crypto lender BlockFi has about $227 million in accounts at SVB, according to court filings.
–With support from Muyao Shen, Sunil Jagtiani, Olga Kharif, David Pan and Shiyin Chen.
(Updated with statement from Circle starting from third paragraph and refresh price)
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