USDC loses peg to the dollar amid SVB collapse

The USD Coin (USDC) stablecoin has lost its peg to the US dollar and, at the time of writing, trades at $0.92 after its issuer Circle announced that $3.3 billion of reserves were held at the government-closed Silicon Valley Bank (SVB).

1/ 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.

— Circle (@circle) March 11, 2023

USDC’s market capitalisation fell by about 13% in under 24 hours, according to CoinGecko. At the time of writing, the stablecoin’s capitalisation stood at $38.1 billion.

On Friday, March 10, the California Department of Financial Protection and Innovation closed SVB due to “a lack of liquidity and insolvency” and handed it over to the Federal Deposit Insurance Corporation (FDIC).

The Centre consortium, which includes Circle and the US bitcoin exchange Coinbase, issues USDC. Coinbase temporarily paused converting USDC into US dollars due to banks being closed over the weekend. The platform said it planned to resume the process on Monday.

We are temporarily pausing USDC:USD conversions over the weekend while banks are closed. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions.

— Coinbase (@coinbase) March 11, 2023

Crypto exchange Binance has temporarily suspended auto-conversion of USDC to BUSD “due to current market conditions”.

Binance has temporarily suspended auto-conversion of USDC to BUSD due to current market conditions, specifically related to high inflows & the increasing burden to support the conversion.

This is a normal risk-management procedural step to take while we monitor the situation.

— Binance (@binance) March 11, 2023

One user called it “karma” — in February Bloomberg reported that Circle filed a complaint with the New York State Department of Financial Services (NYDFS) regarding the quality of management of the Binance USD (BUSD) reserves.

The CEO of the exchange, Changpeng Zhao, said he did not trust this information.

«I still believe they didn’t do anything to hurt BUSD. Whoever harms one player harms themselves», — wrote him.

I still choose to believe they didn’t do anything to hurt BUSD. Anything that hurts one player hurts themselves.

— CZ ? Binance (@cz_binance) March 11, 2023

The chief technology officer of the stablecoin issuer Tether, Paolo Ardoino, wrote that USDT was not tied to Silicon Valley Bank.

#tether doesn’t have any exposure to SVB

— Paolo Ardoino ? (@paoloardoino) March 10, 2023

Kraken co-founder Jesse Powell assured that the SVB collapse did not affect the cryptocurrency exchange.

We have no exposure to SVB.

— Jesse Powell (@jespow) March 11, 2023

According to data from analytics firm Nansen, Circle burned $2.34 billion in USDC over the last 24 hours, while about 366 million USDC were minted in the same period.

Do take note that there’s also ~$366 million $USDC minted during this period of time, including $12.2 million minted just 38 minutes ago pic.twitter.com/scXnbiqeaO

— Nansen ? (@nansen_ai) March 11, 2023

According to the FDIC, as of December 31, 2022, SVB’s total assets stood at about $209 billion, and total deposits around $175.4 billion.

SVB is a preferred bank for a broad range of US tech startups, with more than 2,600 fintech clients.

On March 9, SVB’s stock fell more than 60%, and its market capitalisation fell by $10 billion after the institution announced plans to place nearly all of its securities for $1.75 billion. In addition, venture firm General Atlantic bought a stake in the bank for $500 million.

Against this backdrop, five venture firms focused on digital assets recommended that their portfolio companies withdraw funds. Mechanism Capital, Eden Block and Pantera Capital joined the call. Two other investors did not disclose.

According to CoinDesk, SVB’s crypto clients also include Blockchain Capital, Castle Island Ventures and Dragonfly. Reuters writes that the collapse was the largest since the 2008 financial crisis and the second-largest in US history after Washington Mutual Bank.

Earlier this March, crypto companies distanced themselves from Silvergate Bank amid bankruptcy rumours.

Later, Silvergate Capital Corporation said it planned to liquidate its subsidiary.