Circle Plans to Use Corporate Funds to Make up for Lack of Liquidity at SVB
Circle, the issuer of USD Coin (USDC), stated on March 11 that it intends to use its own resources to make up for any shortages in its reserves after Silicon Valley Bank ceased operations.
Circle has stated that when US banks reopen on Monday, USDC redemptions will be able to be made at an exchange rate of 1:1 with the American dollar.
The news came out following the fall of the stablecoin’s $1 tie-in on March 11, when it traded down to $0.87 before eventually reverting to its original value at $0.98 as of press time. The peg was broken due to the disclosure of Circle’s $3.3 billion reserve in Silicon Valley Bank.
The California Department of Financial Protection and Innovation abruptly closed Silicon Valley, one of the most influential lenders in America for venture-backed companies, on March 10th which caused alarm concerning what would happen next. The Federal Deposit Insurance Corporation was appointed as the receiver to protect deposit accounts that are insured.
Circle declared that Silicon Valley has been a dependable ally to the American innovation system, which experienced a ‘bank run’ similar to what occurred during the 2008 economic crash. Not many conventional banks have enough liquidity to survive this kind of run.
“SVB suffered significant losses which led to a situation where they were forced to sell long-duration assets to meet redemption demand. The settlement period on these assets caused a short-term liquidity crunch, leading to the FDIC stepping in to administer the bank yesterday. SVB’s fate is being decided this weekend by the FDIC and it’s our hope that they will find a solution that protects customers’ assets 100%. “
USDC is the second most valuable stablecoin, with a market capitalization of over $42 billion as of January 31. Its depeg had a prompt impact on other stablecoin networks, according to Cointelegraph’s report today.
Relief efforts began within three days of the failure of American technology bank Cointelegraph, as reported. Bob Elliot, chief investment officer at Unlimited Funds, stated that ‘major banks are actively working to purchase the svb business’. The U.S. Federal Deposit Insurance Corporation (FDIC) will provide coverage for 95% of uninsured deposits to the purchaser and that 50% of those uninsured deposits will be paid out in a week’s time.
Circle’s most recent audit report, examined and verified by Deloitte, a Big Four accounting firm, states that USDC is completely supported by cash and U.S. Treasuries. As of Jan 31, these reserves amounted to approximately $8.6 billion which were held in numerous U.S. banks; this makes up about 20% of the entire reserve fund. The remaining $33 billion was kept in the Circle Reserve Fund under the supervision of BlackRock and custody with BNY Mellon, both of which are U.S Treasury-based organizations