Circle plans to cover Silicon Valley Bank’s cash crunch with corporate funds

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USD Coin (USDC) issuer Circle plans to use “corporate resources” to cover shortfall in reserves from Silicon Valley Bank shutdown, said the company in a statement on March 11.

According to Circle, USDC liquidity operations will “resume as normal when banks open Monday morning in the United States,” allowing USDC to redeem 1:1 with the US dollar.

The announcement came after the stablecoin lost its $1 peg on March 11 to trade at $0.87 before slowly re-anchoring at $0.98 at press time. The stablecoin lost its peg after Circle’s $3.3 billion stash leaked to Silicon Valley Bank.

The price of USD coins is slowly recovering after breaking away from the US Dollar. Source: CoinMarketCap

Silicon Valley is one of the largest lenders in the United States and a major player for venture-backed companies. The bank was shut down on March 10 by the California Department of Financial Protection and Innovation, stoking fears about its future. The Federal Deposit Insurance Corporation has been appointed receiver to protect insured deposits.

In the statement, Circle asserted that Silicon Valley is “a venerable and trusted partner in America’s innovation economy,” which has suffered a “classic bank run, much like the ones we saw during the financial crisis of 2008. Few traditional banks have sufficient liquidity to withstand such a run.”

SVB suffered significant losses which led to a situation where they were forced to sell long-lived assets to meet redemption demand. The settlement period for these assets has caused a short-term liquidity crunch, leading the FDIC to step in to administer the bank yesterday. The fate of SVB is decided this weekend by the FDIC and we hope they find a solution that protects customers’ assets 100%.

USDC is the second-largest stablecoin, with a market capitalization of over $42 billion as of January 31, serving as collateral for many stablecoin ecosystems. Its depeg had an immediate effect on other stable ecosystems, Cointelegraph reported earlier today.

Relief efforts are underway less than 72 hours after US tech bank Silicon Valley Bank (SVB) collapsed, Cointelegraph reported. According to Bob Elliot, chief investment officer at Unlimited Funds, “the big banks are actively working to buy svb businesses.” The US Federal Deposit Insurance Corporation (FDIC) will cover 95% of uninsured deposits to the acquirer, and that “50% of the uninsured will be paid next week”.

According to Circle’s latest audit report from January, USDC is 100% backed by cash and US Treasuries, with nearly $8.6 billion held by US banks as of January 31, which accounts for about 20% of its reserves. Another $33 billion of its reserves are held in US Treasuries managed by BlackRock through the Circle Reserve Fund, registered as a government money market fund and held by BNY Mellon. Circle’s January report has been reviewed and certified by Big Four accounting firm Deloitte.