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$USDC Loses Its Peg And Then Finds It Again –  Will Avert UST’s Fate?

BlockNews Team by BlockNews Team
March 13, 2023
in Business, Crypto, Finance, Media
Reading Time: 4 mins read
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  • USDC lost its 1:1 peg to the US dollar as a result of the closure of Silicon Valley Bank but was able to recover a few days later.
  • Circle stated that it is going to cover any deficit of the $3.3 billion held in Silicon Valley Bank in order to rescue USDC
  • Federal Deposit Insurance Corporation is looking for a buyer for SVB to save other related regional banks from falling

On Friday, the USD Coin (USDC), the world’s second-largest stablecoin, lost its 1:1 peg to the U.S. Dollar but regained it by Sunday.

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USDC lost its peg to an all-time low of $0.88 due to the disclosure by Circle, the company that issues USDC, that $3.3 billion of USDC reserves were held in Silicon Valley Bank(SVB), which California watchdog had shut down. Circle tweeted, saying,” $3.3 billion of the ~$40 billion of USDC reserves remain at SVB,” adding that, like all other depositors, they were vouching for the bank’s continuity.

1/ Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.

— Circle (@circle) March 11, 2023
Via @circle – Twitter

In addition, Coinbase, an exchange that also issues USDC, tweeted that it was temporarily halting all USDC to USD conversions which fueled unrest in the market. This caused panic, which led to the de-pegging of the USDC stablecoin resulting in a domino effect that de-pegged other stablecoins, including DAI, FLAX, and USDD.

We are temporarily pausing USDC:USD conversions over the weekend while banks are closed. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions.

— Coinbase (@coinbase) March 11, 2023
Via @coinbase – Twitter

However, in an update on the situation between SVB and USDC, Circle stated in a blog post that it would use corporate resources to make up for any deficits and even seek external capital if the need arises.

In addition, the U.S. Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg released a joint statement stating that depositors of SBV would have access to their money by Monday, March 13th. The information added, “The taxpayer will bear no losses associated with the resolution of Silicon Valley Bank.”

This relieved the market, which enabled USDC to start recovering toward its 1:1 peg ratio. Circle also clarified that it had no exposure to Signature bank, which has also been closed by regulators while assuring USDC holders that the stablecoin will remain “redeemable 1:1 with the U.S. Dollar”.

Silicon Valley Bank’s fate

Silicon Valley Bank was the financial home to many startups in Silicon Valley, multiple crypto firms, and many venture capital firms making it the 16th largest bank in the United States. Its collapse a few days ago has been termed the most significant U.S. bank failure since the 2008 financial crisis.

However, unlike the usual scene during such circumstances, as seen in the crypto industry over the last few months, many venture capitalists(VCs) and investors have come together to decide how to mitigate the damage caused by the bank in the event it “were to be purchased and appropriately capitalized.” Around 125 VCs and investors signed a statement initiated by venture firm General Catalyst supporting SVB.

Several VC leaders met today to discuss the aftermath of SVB’s downfall. This is a joint statement from all of us. @Accel @altcap @BCapitalGroup @generalcatalyst @eladgil @GreylockVC @khoslaventures @kleinerperkins @lightspeedvp @MayfieldFund @Redpoint @RibbitCapital @upfrontvc pic.twitter.com/7OtHq0zwT1

— Hemant Taneja (@htaneja) March 11, 2023
Via @htaneja – Twitter

Executives in the financial industry have also urged regulators to find a buyer for the bank to prevent a domino effect on other regional banks in the U.S. As a result, the Federal Deposit Insurance Corporation (FDIC), the appointed receiver, has been working over the weekend to find another bank ready to consolidate with Silicon Valley Bank.

Tags: $USDCcircleCoinbaseStablecoinusdc
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