Circle assures market after stablecoin USDC breaks dollar peg

LONDON (Reuters) – Stablecoin USD Coin (USDC) has recovered most of its losses after losing its dollar peg to a record low on Wednesday. Exposure to the failed Silicon Valley Bank.

Circle said in a tweet on Friday that it held $3.3 billion of its $40 billion USDC reserves in Silicon Valley banks. On Saturday, the cryptocurrency firm said in a blog post that USDC liquidity operations will resume as normal when banks open Monday morning in the United States.

“As a regulated payment token, USDC can still be exchanged 1:1 with the US dollar,” the company said in a blog post.

The cryptocurrency company said that if the bank does not return 100% of the deposits, it will use corporate resources to cover the shortfall, including external capital if necessary.

The coin, which broke the 1:1 dollar peg down to $0.88 just after 0800 GMT (3 a.m. ET) on Saturday, recovered to about $0.97 by 2100 GMT, according to market tracker CoinGecko.

The Silicon Valley Bank collapsed on Friday in the biggest US bank failure since the 2008 financial crisis, disrupting global markets and stranding billions of dollars belonging to businesses and investors.

The Circle said in a tweet Friday that while it waits for the company to clarify what will happen to Silicon Valley Bank depositors, the company and USDC are “continuing normal operations.”

Meanwhile, U.S. crypto exchange Coinbase said in a tweet that it will not allow USDC to be exchanged for US dollars on weekends when banks are closed, citing “increased activity” to resume swaps on Monday. He said he planned to

Enigma Securities investment adviser Joseph Edwards said the situation was “very serious” for USDC.

“No matter how healthy Circle is operating, this kind of depegment to a stablecoin tends to fundamentally undermine its credibility,” said Edwards.

“The short-term impact here will be dramatic and unknowable, especially when the system needs to adjust to the reality that 1 USDC is no longer trading at 1 USD for the foreseeable future.”

constant exchange rate

Stablecoins are cryptocurrencies designed to maintain a constant exchange rate with “fiat” currencies (currencies backed by central governments rather than physical commodities such as gold).

Used in cryptocurrency trading, its value has skyrocketed in recent years. USDC is the second largest stablecoin with a market capitalization of $37 billion. According to CoinGecko, the largest Tether has a market capitalization of $72 billion.

USDC prices typically hold close to $1, making Saturday’s drop unprecedented. According to data from CoinGecko, the all-time low in 2018 was around $0.97, but in 2022, the collapse of cryptocurrency hedge fund Three Arrows Capital disrupted the cryptocurrency market, pushing it to just below $0.99. rice field.

This week, traders have been wary of signs of contagion in the financial sector and beyond, from trouble with Silicon Valley banks and crypto-focused Silvergate (SI.N).

Boston-based Circle announced last week that it had transferred a “small portion” of USDC reserves held at Silvergate to other banking partners.

The CEO of crypto exchange Binance said in a tweet on Friday that he, like Tether’s chief technology officer Paolo Aldoino, has no ties to Silicon Valley Bank.

Paxos, a stablecoin issuer, and Gemini, a cryptocurrency exchange, have also tweeted that they are not affiliated with banks.

Reported by Elizabeth Howcroft of London and Rishabh Jaiswal of Bangalore.Edited by William Mallard, David Holmes and Paul Simao

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