USDC liquidity operations will resume as normal on Monday morning in the United States, allowing for redemption at 1:1 with the U.S. dollar.
USD Coin (USDC) issuer Circle has announced that it will use its own resources to cover the shortfall on its reserves following the shutdown of Silicon Valley Bank (SVB).
The move comes as a relief to USDC holders who were concerned about the stablecoin’s loss of its $1 peg on March 11, dropping to as low as $0.87 before slowly rising to $0.96 at the time of publication.
With the resumption of USDC liquidity operations, holders can redeem their USDC at 1:1 with the U.S. dollar when banks open on Monday morning in the United States.
SVB, one of the biggest lenders in the United States and a major player in venture-backed companies, was shut down on March 10 by the California Department of Financial Protection and Innovation, leading to fears about its future.
The Federal Deposit Insurance Corporation (FDIC) was appointed as the receiver to protect insured deposits. SVB suffered significant losses, leading to a situation where they were forced to sell long-duration assets to meet redemption demand. The settlement period on these assets caused a short-term liquidity crunch, leading to the FDIC stepping in to administer the bank.
In Circle’s statement, the company expressed confidence in SVB, calling it “a venerable and trusted partner to the US innovation economy”. The statement further asserted that SVB’s shutdown was due to a “classic bank run, much like those we saw during the financial crisis in 2008”. Few traditional banks have sufficient liquidity to withstand such a run, the statement added.
It’s worth noting that USDC is the second-biggest stablecoin with a market cap of over $42 billion as of January 31, serving as collateral for many stablecoin ecosystems. Its depeg immediately affected other stablecoin ecosystems.
Relief efforts were underway less than 72 hours after the collapse of the American tech bank. According to Bob Elliot, the chief investment officer of Unlimited Funds, “big banks actively working on buying SVB business.” The U.S. Federal Deposit Insurance Corporation will cover 95% of uninsured deposits to the acquirer and “50pct of uninsured paid out next week.”
According to Circle’s latest audit report from January, USDC is 100% backed by cash and U.S. Treasuries, with nearly $8.6 billion held by U.S. banks as of January 31, representing roughly 20% of its reserves. Another $33 billion of its reserves are held in U.S. Treasuries managed by BlackRock through the Circle Reserve Fund, registered as a government money market fund and held in custody by BNY Mellon. Big Four accounting firm Deloitte reviewed and certified Circle’s January report.