Circle Pledges To Cover Potential USDC Shortfall if SVB Fails To Return 100% – USDC Repegs Gradually

Silicon Valley Bank (SVB) has been forced to sell long-term assets to meet redemption demands, leading to a short-term liquidity crunch. The situation has caused the Federal Deposit Insurance Corporation (FDIC) to step in and manage the bank. The fate of SVB is currently being determined by the FDIC this weekend, with hopes that they will find a solution to protect customer assets 100%.

The impact of SVB’s situation on USDC, a regulated payment token, has been a topic of concern for many. USDC is collateralized with a combination of cash and US Treasuries, with US Treasury Bills comprising 77% ($32.4B) and cash making up the remaining 23% ($9.7B). USDC has taken action to reduce bank risk by depositing $5.4B with BNY Mellon, a large and stable financial institution.

Circle CEO Jeremy Allaire | Photo by CNBC

However, $3.3B of USDC’s cash reserves remain with SVB, and last week they initiated transfers of these funds to other banking partners. While these transfers had not yet been settled as of Friday’s close, USDC remains confident in the FDIC’s management of the situation and is ready to receive these funds. $1B of USDC’s reserves is held with Customers Bank, and Circle maintains transaction and settlement accounts for USDC with Signature Bank.

It is possible that transfers initiated prior to a bank entering receivership, such as those initiated by USDC, would have otherwise been processed normally under applicable FDIC policy. The FDIC is currently determining the status of these transactions, and it is possible that the transfers initiated on Thursday will be processed on Monday.

Circle, the issuer of USDC, stated in their latest blog post regarding the update on USDC that if SVB fails to return 100%, they will abide by stored-value money transmission regulations and ensure that USDC is covered for any shortfall using their corporate resources. This may also involve external capital if needed.

The situation has had an impact on USDC’s stability, with the stablecoin depegging from its one-to-one U.S. dollar peg to trade as low as $0.87 apiece before slowly re-pegging to trade at $0.96 at the time of publication. Maker DAO, DAI’s issuer, has filed an emergency proposal amending protocol risk parameters in wake of the USDC depegging event.

While the situation with SVB and USDC has caused uncertainty in the market, USDC remains committed to clear and transparent communication and will resume liquidity operations as normal when banks open on Monday morning in the United States. With its strong liquidity and reserve assets, USDC’s teams are well-prepared to handle significant volume.

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