USDC stablecoin lost its peg to the dollar early Saturday, dropping as low as $0.84 moments after the descent of Silicon Valley Bank, a major banking partner for Circle.
According to sources, the startup-focused lender collapsed on Friday after disclosing that it was selling a further $2.25 billion in shares to shore up its balance sheet after a previous sale resulted in a loss. The news triggered a bank run causing the bank’s share price to crater.
California regulators were later forced to shut down the tech lender, placing it under the receivership of the US Federal Deposit Insurance Corporation. This means that the FDIC is now tasked with liquidating the bank’s assets and compensating its creditors and customers.
The collapse of SVB roiled major markets, with some top financial institutions as well as Circle, the issuer of USDC, getting affected. In a statement, Circle confirmed being an SVB partner, stating that some $3.3 billion USDC was stuck at the bank.
“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.”
USDC is backed by the equivalent value of US dollar-denominated assets held as reserves for the benefit of USDC holders. About 25% of USDC reserves are held at six US financial institutions, including SVB. Apart from the lender’s collapse causing the de-peg, the stablecoin’s market capitalization dropped over 9% overnight to $37 billion. Some crypto exchanges, including Binance and Robinhood, also announced that they were halting USDC-related activities such as conversions and trading.
Meanwhile, Circle called for calm, assuring customers that it would continue to operate normally while it awaits clarity on how the FDIC receivership of SVB will impact its depositors.
“Circle is currently protecting USDC from a black swan failure in the U.S. banking system. SVB is a critical bank in the U.S. economy and its failure – without a Federal rescue plan – will have broader implications for business, banking and entrepreneurs,” Dante Disparte, Chief Strategy Officer at Circle, said in a statement.
That said, despite the collapse of USDC, most cryptocurrencies remained stable for most of the day on Saturday, with Bitcoin and Ethereum up 2.46% and 4% in the past 24 hours, as seen on CoinMarketCap. At press time, USDC was yet to regain its dollar peg, trading at $0.91 after a brief recovery.