Circle (USDC) Reveals Plan To Cover SVB Loss With Corporate Funds

By Kevin • March 12, 2023 10:36 pm • Comments

Circle’s stable coin USDC made news yesterday when the company had revealed that it had around $3.3 billion that was still locked with Silicon Valley Bank.

Since this means that the amount of reserves that Circle has to back up the value of USDC has fallen short, many USDC holders started to panic sell yesterday and managed to depeg the stable coin.

However, the company has now made a second announcement where they revealed that they plan to cover the missing $3.3 billion using external funds.

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This will only happen once the company confirms that the worst case scenario happens and that Circle is unable to recover 100% of the funds in SVB.

It is not confirmed yet as Circle has mentioned that they had already initiated transfers from SVB to other banks, but the transfers have not processed yet.

Watcher.guru reports:

Stablecoin issuer Circle has announced an update on the USDC and Silicon Valley Bank situation to spread commitment and transparent communication. It also mentioned that even though USDC can be used 24/7/365 on the chain, redemption, and issuance are limited to the working hours of the US banking system.

Circle stated in the announcement:
“USDC liquidity operations will resume as normal when banks open on Monday morning in the United States.”

The stablecoin issuer reassured investors about the collateralization, stating:
“USDC is currently collateralized 77% ($32.4B) with US Treasury Bills (with a three month or less maturation period), and 23% ($9.7B) with cash held at a variety of institutions, of which SVB is only one.”

Where Circle will be able to get these corporate funds is still unknown as it would either be out of the company’s own budget or perhaps as a loan from another source.

The actual state of the situation will likely be revealed on Monday in regards to whether or not SVB will actually release funds and if another institution will buy out SVB’s assets.

If SVB does not get a buyer or is not bailed out, this will likely impact many crypto projects and firms given that SVB is one of the primary banks for the crypto industry.

Based on the statement from Circle, it seems that most of the cash reserves is still safe so there is a good chance that the USDC stable coin will not end up in the situation as Terra USD (UST) and will be able to regain its dollar price mark.

More details will come Monday morning as many investors and speculators await the final outcome.

CoinTelegraph concludes:

Relief efforts were underway less than 72 hours after the collapse of American tech bank, Cointelegraph reported. According to Bob Elliot, chief investment officer of Unlimited Funds, “big banks actively working on buying svb business.”

The U.S. Federal Deposit Insurance Corporation (FDIC) will cover 95% of uninsured deposits to the acquirer, and that “50pct of uninsured paid out next week.”

According to Circle’s latest audit report from January, USDC is 100% backed by cash and U.S. Treasuries, with nearly $8.6 billion held by U.S. banks as of Jan. 31, representing roughly 20% of its reserves.

Another $33 billion of its reserves are held in U.S. Treasuries managed by BlackRock through the Circle Reserve Fund, registered as a government money market fund and custody by BNY Mellon. Circle’s January report was reviewed and certified by Big Four accounting firm Deloitte.

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