- 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.
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.
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.
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.
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.