LONDON, March 11 (Reuters) – Stablecoin USD Coin (USDC) lost its dollar peg and fell to an all-time low on Saturday before recouping most of its losses after Circle, the company behind it, assured investors that despite exposure to the bankrupt Silicon Valley Bank.
Circle said in a tweet Friday that it holds $3.3 billion of its $40 billion in USDC reserves with Silicon Valley Bank. On Saturday, the cryptocurrency company said in a blog post that USDC liquidity operations will resume normally when banks open in the United States on Monday morning.
“As a regulated payment token, USDC remains 1 for 1 convertible to the US dollar,” the company said in a blog post.
The cryptocurrency company said that in the event that the bank does not repay 100% of deposits, it will cover any shortfalls with corporate funds, with external capital if necessary.
The coin, which broke its 1:1 peg and fell to $0.88 shortly after 08:00 GMT (03:00 EST) on Saturday, recovered to trade around $0.97 by 2100 GMT.
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Silicon Valley Bank collapsed on Friday in the largest U.S. bank failure since the 2008 financial crisis, shaking global markets and stranding billions of dollars of businesses and investors.
Circle said in a tweet Friday that the company and USDC will continue to “operate normally” as the company awaits clarity on what will happen to Silicon Valley Bank depositors.
Meanwhile, US crypto exchange Coinbase said in a tweet that it would not allow USDC to be exchanged for US dollars over the weekend while banks were closed, citing “increased activity” while planning to close the swaps on Monday. to resume.
Joseph Edwards, an investment advisor at Enigma Securities, said the situation was “extremely serious” for USDC.
“As sound as Circle’s operations are, this kind of depeg on a stablecoin tends to fundamentally undermine trust in it,” said Edwards.
“The near-term implications here are dramatic and unknowable, especially as systems begin to need to adapt to the reality that 1 USDC is not trading against 1 USD for some time.”
CONSTANT EXCHANGE RATE
Stablecoins are cryptocurrencies designed to maintain a constant exchange rate with “fiat” currencies – currencies backed by a central government rather than a physical commodity such as gold – for example through a 1:1 US dollar peg .
They are used in cryptocurrency trading and have skyrocketed in value in recent years. USDC is the second largest stablecoin with a market cap of $37 billion. The largest, Tether, has a market cap of $72 billion, according to CoinGecko.
The price of USDC is usually near $1, making Saturday’s drop unprecedented. According to CoinGecko data, the previous all-time low was around $0.97 in 2018, though it fell just below $0.99 in 2022 as cryptocurrency markets were rocked by the collapse of crypto hedge fund Three Arrows Capital.
Traders this week have been wary of signs of contagion in the financial sector and beyond amid troubles for Silicon Valley Bank and crypto-focused Silvergate (SI.N), which this week announced plans to wind down operations and voluntarily liquidate.
Boston-based Circle said last week it had transferred a “small percentage” of USDC reserve deposits at Silvergate to its other banking partners.
The CEO of cryptocurrency exchange Binance said in a tweet Friday that it had no exposure to Silicon Valley Bank, as did Tether Chief Technology Officer Paolo Ardoino.
Stablecoin issuer Paxos and crypto exchange Gemini also tweeted that they have no relationship with the bank.
Reporting by Elizabeth Howcroft in London and Rishabh Jaiswal in Bengaluru; Edited by William Mallard, David Holmes and Paul Simao
Our Standards: The Thomson Reuters Principles of Trust.
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