The impact of the Silicon Valley Bank thunderstorm on the cryptocurrency industry continues. At present, the most deeply and widely affected is the world's second largest stablecoin USDC. Risk exposure, after seeing various thunderstorms in 2022, the frightened cryptocurrency industry has already seriously lacked confidence. Redemption and selling caused USDC to seriously destabilize in a short period of time. The industry's most compliant $1 stablecoin was even worth less than 90 cents on March 11.
In this regard, Circle issued a statement and response. Most importantly, Circle stated that if Silicon Valley Bank’s $3.3 billion in reserves cannot be returned 100%, Circle will use company resources, not excluding the use of external capital, to make up for any shortfall. It also injected some confidence into the industry.
The following is the full text of Circle's response:
Although USDC can be used on the chain 7 x 24 hours, the issuance and redemption are limited by the working hours of the US banking system.
When U.S. banks open on Monday morning, USDC liquidity operations will return to normal. In fact, our team is well prepared to handle a high volume of transactions, based on the strong liquidity and reserve assets discussed below.
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What just happened?
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What is the impact of USDC reserves?
USDC is 100% collateralized by cash and US Treasuries.
Specifically, USDC is currently collateralized by 77% ($32.4 billion) of U.S. Treasury bills (maturities of three months or less) and 23% ($9.7 billion) of cash held in various institutions , of which SVB is just one of them. U.S. Treasury bonds are the most liquid assets in the world and are the direct debt of the U.S. government. These reserves are hosted by BNY Mellon with active liquidity and asset management managed by BlackRock. Anyone can view the entire liquidity ladder, including the CUSIP number, through the USDXX code.
The remaining 23% ($9.7 billion) was cash. Last week, we took action to reduce bank risk and deposited $5.4 billion with BNY Mellon, one of the world's largest and most stable financial institutions, known for the strength of its balance sheet and custody services.
USDC's $3.3 billion cash reserves remain in SVB. As of Thursday, we have begun transferring these funds to other banking partners. Although these transfers had not settled as of Friday's close, we are confident in the FDIC's administration of SVB and are prepared to receive these funds.
With $1 billion in USDC reserves held at Customers Bank, the industry is looking to expand its trade settlement options, and Circle maintains trade and settlement accounts for USDC at Signature Bank. Both banks are important to the digital asset industry.
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What can we expect from the SVB and the FDIC?
We have reason to believe that transfers initiated prior to the bank entering receivership will be processed normally under applicable FDIC policies. In other words, the FDIC should allow transactions to settle normally within the banks' standard daily processing cycles until the FDIC takes over the failing institution. We understand that the FDIC is currently determining the status of transactions initiated before the applicable receivership deadline and that transfers initiated on Thursday may be processed on Monday.
In addition, SVB has a strong franchise and is a center for growth in the US entrepreneurship and technology industries. We hope that the FDIC as receiver will seek to quickly purchase and assume a strong franchise like SVB to ensure all depositors are repaid.
However, SVB may not be fully repatriated, and any restitution may take some time as the FDIC issues IOUs (i.e. certificates of receivership) and pays deposit holders prepaid dividends.
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