USDC, a dollar-pegged stablecoin, lost its link to the U.S. currency as customers made rapid withdrawals after its founder, Circle Internet Financial Ltd., said it had $3.3 billion in Silicon Valley Bank that collapsed.
Key Takeaways
- USDC stablecoin becomes the first crypto victim of Silicon Valley Bank.
- The fifth-largest cryptocurrency lost its U.S. dollar peg as investors took their money out.
- This debacle is a major headache for the crypto sector.
USDC Loses its U.S. Dollar Peg
Circle’s USDC stablecoin saw substantial investor withdrawals in the past 24 hours leading to its market cap dropping to $37 billion from $43.5 billion and its price falling below $0.87 during Saturday morning. USDC is the second-largest stablecoin in the cryptocurrency market after Tether, which has a market cap of $72 billion.
Silicon Valley Bank (SIVB) went down on Friday, making it the largest U.S. bank failure since the 2008 financial crisis, sending shockwaves through the banking sector. Circle and crypto exchange Coinbase created USDC in a joint venture announced in 2018.
“Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB,” a Circle tweet said. That number has now decreased and almost 10% of the USDC reserves are now held in the failed bank. Stablecoins are used as a fiat-to-cryptocurrency on-ramp. The 1:1 peg to the U.S. dollar is based on investor trust and requires equal backing with U.S. dollar assets. Payments giants Visa (V) and Mastercard (MA) had both previously taken part in the testing of crypto payments using USDC.
Stablecoin Investors Face More Turmoil
USDC later recovered from its lows after Circle said it would cover any shortfall and said it would resume redemptions early Monday.
The cryptocurrency sector is facing a major problem with another stablecoin in trouble. Tether and USDC had recently seen investor inflows as people moved their funds from crypto exchange Binance’s BUSD. Paxos was involved in a commercial partnership to mint the stablecoin for Binance, the world’s largest crypto exchange. Then authorities compelled the company to suspend the agreement in February and BUSD lost more than 50% of its market cap. The latest issues with the USDC coin will leave crypto investors with limited options of where to park their cash holdings.
