Traders have withdrawn a net $3bn from the crypto stablecoin USDC in the last three days as the fallout from the failure of Silicon Valley Bank spreads into the digital asset market.
In a blog post late on Wednesday, Circle, the operator of USDC, said it had cleared “substantially all” of the backlog of minting and redemption requests relating to USDC in recent days. A total of $3.8bn of tokens were redeemed by investors since the weekend, and it had minted $0.8bn of new coins, it added.
The withdrawals, which represent almost 10 per cent of the stablecoin’s total circulating supply, came after US-based Circle said it had $3.3bn trapped at SVB. The bank was one of the main US banks used by crypto companies as the conduit between crypto and sovereign money, for custody of Circle’s deposits.
Circle’s USD Coin is one of the linchpins of trading in digital asset markets. A stablecoin helps connect traditional and crypto markets and traders use them like cash or a store of value between crypto trades. USDC typically tracks the value of the dollar one-for-one but traded as low as 88 cents after Circle admitted its exposure to SVB.
Its price rallied and it regained its dollar peg after US authorities moved to establish a rescue package for SVB’s depositors, indirectly boosting confidence in crypto markets. Chief executive Jeremy Allaire also said Circle would “stand behind” the token, and cover any shortfall using corporate resources, including external capital if necessary.
“The decision by US regulators to repay Silicon Valley Bank’s unsecured deposits in full allowed the USDC price to recover,” said Cristiano Ventricelli, an analyst at Moody’s, the credit rating agency. “Otherwise, USDC could have suffered from a run and been forced to liquidate its assets.”
Circle has rushed to move the rest of the cash deposits for its reserves to other banks as jitters spread through the banking sector.
Of the $9.7bn in cash, $3.3bn was at SVB. Last week, Circle moved $5.4bn to US custody bank BNY Mellon. A further $1bn was held with Customers Bank, a small Pennsylvania-based bank. Shares in Customers have dropped by a fifth in the past week amid nervousness in the US banking sector.
“I understand the flight to scale, it’s the idea that these banks are too big to fail, and if something goes wrong the US government will stand behind them,” said Varun Paul, director of market infrastructure at blockchain platform Fireblocks, who previously spent 14 years at the Bank of England. “That may end up being true, it’s just not an ideal situation.”
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A person familiar with the matter said the company was “comfortable” having moved the majority of its cash reserves to BNY Mellon “for the foreseeable future”.
SVB’s collapse also followed the demise of two other crypto-friendly banks in Signature and Silvergate, representing a blow to the industry’s already-thin access to the established banking system.
“It could have ended up much worse than it did, some prices have bounced back but this just shows how the second-largest stablecoin is not stable, and that’s very ironic,” said Larisa Yarovaya, deputy head of the Centre for Digital Finance at Southampton Business School.
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