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- 1 Cryptocurrency investors have withdrawn $3 billion in USDC.
- 2 USDC dropped as low as $0.88 before rising to $1 on Monday.
- 3 Circle to “stand behind” the token and fill any funding gaps.
In three days, cryptocurrency investors withdrew about $3 billion from the stablecoin USDC, according to Circle. This was done when investors hurried to redeem their holdings following the collapse of Silicon Valley Bank.
As the effects of Silicon Valley Bank’s collapse are felt across the market, traders withdrew a net $3 billion from the cryptocurrency stablecoin USDC in the last three days.
The company in charge of running USDC, Circle, said in a blog post published late on Wednesday that it has recently cleared “virtually all” of the backlog of minting and redemption requests pertaining to USDC. Investors have redeemed a total of $3.8 billion worth of tokens since the weekend, while $0.8 billion worth of new coins have been produced, it added.
As Circle disclosed that $3.3 billion of the coin’s reserves were at SVB on Saturday, USDC violated its dollar peg.
According to a major news agency’s data, the stablecoin dropped as low as $0.88 before rising to $1 on Monday. Circle said that it would work with Cross River Bank through a new banking arrangement to enable automatic USDC redemption.
Circle’s Dollar Coin
The withdrawals, which account for approximately 10% of the stablecoin’s total supply currently in circulation, happened after US-based Circle claimed to have $3.3 billion stranded at SVB. In order to facilitate the transfer of Circle’s deposits between digital currency and fiat money, the bank was one of the major US banks used by cryptocurrency startups.
One of the key components of trading on digital asset marketplaces is Circle’s Dollar Coin. The use of stable coins as money or a store of value in between crypto trades helps to bridge the gap between traditional and digital currency markets. Normally, USDC reflects the value of the dollar 1:1, but once Circle disclosed its exposure to SVB, it traded for as low as 88 cents.
Once US authorities rushed to create a rescue plan for SVB’s depositors, its price spiked and it regained its dollar peg, inadvertently bolstering confidence in the cryptocurrency markets. Jeremy Allaire, the chief executive, added that Circle would “stand behind” the token and fill any funding gaps with internal resources, including outside capital if necessary.
Warning from US Banking Regulators
According to Circle’s blog post, from Monday to Wednesday, they processed $3.8 billion in USDC redemptions (investors exchanging their tokens back into dollars) and produced $0.8 billion more of the token.
The quick exits follow a recent warning from US banking regulators last month that deposits tied to cryptocurrencies in banks may be vulnerable to liquidity problems. At times of market stress, deposits tied to stablecoins may be volatile if there is a sudden surge in redemption requests, according to the regulators.
According to data, investors have sold the coin for a net total of $6 billion during the last week.
SVB held $3.3 billion of the $9.7 billion in cash. Circle transferred $5.4 billion last week to US custodian bank BNY Mellon. A further $1 billion was kept at Customers Bank, a little bank based in Pennsylvania. Clients’ stock has decreased by 5% in the past week due to uncertainty in the US banking sector.
Varun Paul, director of market infrastructure at Fireblocks, remarked that there is a belief that banks are too big to fail. He added that if something goes wrong, the US government would stand behind them. Even though it might turn out to be accurate, the scenario is not ideal.
The corporation was “comfortable” after transferring the majority of its cash reserves to BNY Mellon “for the foreseeable future,” according to a source with knowledge of the situation.
Two other crypto-friendly banks, Signature and Silvergate, also went out of business after SVB’s bankruptcy.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
