Following the announcement last night by federal regulators that all deposits at Silicon Valley Bank (NASDAQ:SIVB) would be guaranteed, Circle CEO issued a statement on the company’s dollar-based stablecoin, USDC, as any risk was eliminated from Circle’s relationship with SVB.
As was reported last week, USDC lost its dollar peg as markets reacted to SVB’s collapse – due to the decline in the value of its long-duration securities. Circle reported that it held $3.3 billion at the bank – putting those funds at peril for quick access. USDC at one point sank by a whopping 12%. Today, USDC has regained its dollar peg with that as a regulated payment token, USDC remains redeemable 1:1 with the US Dollar.
Jeremy Allaire, Circle founder and CEO, stated:
“Trust, safety and 1:1 redeemability of all USDC in circulation is of paramount importance to Circle, even in the face of bank contagion affecting crypto markets. We are heartened to see the U.S. government and financial regulators take crucial steps to mitigate risks extending from the banking system. We’ve long advocated for full-reserve digital currency banking that insulates our base layer of internet money and payment systems from fractional reserve banking risk.”
Circle added that USDC is currently collateralized with 77% ($32.4 billion) with short-dated U.S. Treasury Bills. The company said that these reserves are held in custody by BNY Mellon, and active liquidity and asset management is done by BlackRock. The cash portion of the USDC reserve, 23% ($9.7 billion), is now held primarily at BNY Mellon.
The federal government took decisive action as it realized not doing so would put the entire financial system at risk. It has emerged that other banks have a similar challenge as SVB did with questions about the possibility of more bank failures on the horizon. While some have criticized the government’s actions as a bailout, it should be clear to all that its actions are the least costly approach as it removes the risk of another run-on-the-bank occurrence.
