Update: After publication and our first update to include Circle’s initial statement regarding USDC’s reserves, the company announced that “3.3 billion of the ~$40 billion of USDC reserves remain at SVB,” or a hair more than a third of the cash the company had previously detailed it held in January. In the wake of the news, USDC depegged from its $1 target, and is currently trading at around 92 cents on the dollar. About half an hour after Circle’s tweet last evening, Coinbase said that it was “temporarily pausing USDC:USD conversions over the weekend while banks are closed,” adding that it planned to “recommence conversions” when banks opened on Monday.
While the startup world digests the shocking implosion of well-known financial institution Silicon Valley Bank, the fallout may extend to the crypto world as well. One stablecoin in particular, USDC, was known as of January 17 to have held some of its backing capital at SVB, funds that are likely now illiquid for several days.
When reached out to Circle, the issuer of USDC, for comment on the state of the stablecoin’s reserves, a spokesperson said, “we’re working on this internally, and I’ll keep you posted when I have a response to share.” It is possible that the company moved cash from SVB before it wasn’t able to Thursday; it is also possible that the company had previously removed funds from the bank since its latest asset disclosures.
A Circle spokesperson said Friday that “Silicon Valley Bank is one of six banking partners Circle uses for managing the approximately 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.”
According to Circle’s January attestation report, the firm had about $9.88 billion in cash deposited at regulated banks to back its stablecoin’s value, among other assets. The per-bank allocations were not disclosed, but the cash was held at regulated financial institutions like Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank (a division of Flagstar Bank, N.A.), Signature Bank and, most notably, Silicon Valley Bank and Silvergate Bank.
If Circle did have more than a smattering of cash at SVB, concerns could mount that the backing of USDC may no longer be complete and instead be more fractional than is needed for a stablecoin to remain steady.
Two banks that USDC mentioned using, SVB and Silvergate, made headlines this week for separate but similar reasons. SVB was taken over by regulators and shut down on Friday after the bank announced on Wednesday that it lost $1.8 billion on the sale of U.S. treasuries and mortgage-backed securities that it invested in, owing to rising interest rates. Its efforts to raise more capital and reshape its capital profile to bolster its interest income failed to conserve investor and customer confidence in its health.
Silvergate, a publicly traded crypto-friendly financial institution, shared on Wednesday that it would “wind down operations and voluntarily liquidate” its bank division, which some analysts anticipate will cause problems for the larger digital asset ecosystem.
However, last week, Circle said it moved “the small percentage of USDC reserve deposits held at Silvergate” to other banking partners. “This process of winding down our relationship with Silvergate began last year, as signs of trouble and broader crypto asset risk exposure became increasingly apparent.” This could limit the stablecoin’s potential risk to unstable banking partners.
USDC is the second-largest stablecoin by market capitalization with a $43.5 billion circulating supply and over $6.3 billion in daily traded volume, up 92.33% in the past 24 hours, according to CoinMarketCap data. At the time of publication, USDC held steady at its $1 value.
The stablecoin is pegged to the U.S. dollar on a 1:1 basis and is backed through reserves consisting of a mix of cash and short-term U.S. Treasury bonds. Of that circulating supply about $11.4 billion cash is held at reserve banks as of March 2, Circle’s website states. (Coinbase, which held a total of $2 billion worth of USDC on its books at the end of its fourth quarter in a hybrid of customer and corporate funds, fell 8% today in regular trading.)
It’s also worth noting USDC was launched by Circle and Coinbase in 2018, so it makes sense that Coinbase held a fair amount of it internally.
This story was updated at 4:32 p.m. PT Friday to include a statement from Circle.