Is Circle’s USDC Stablecoin at Risk after the collapse of SVB?

The collapse of Silicon Valley Bank (SVB) on March 10 has sent shockwaves through the crypto industry, leaving many investors concerned about the exposure of major players like Circle, the issuer of the popular stablecoin USDC. With $3.3 billion, or around 8%, of its reserves held at SVB, Circle is now facing heavy redemptions as investors move to cash out.

The USDC stablecoin, which is designed to maintain a peg to the US dollar, has seen its value drift lower across different crypto exchanges amid the withdrawals. Some onlookers have noted “uncharacteristically high volatility” in the price of USDC, as investors rush to take their funds out of the Circle stablecoin.

To add to the uncertainty, crypto exchange Coinbase has suspended USDC:USD conversions for the weekend, citing the need to wait for banks to reopen. Other top exchanges like Binance have initiated similar measures, suspending auto-conversions from USDC to other stablecoins due to “market conditions” and the increasing burden of supporting such conversions.

While many investors are understandably nervous about the state of USDC and the broader crypto ecosystem, Circle has sought to instill confidence by emphasizing that it still has access to multiple banking partners and is actively working to protect the stability of its stablecoin. In a tweet, Dante Disparte, Circle’s chief strategy officer, stated that the firm was “protecting USDC from a black swan failure in the banking system.”

Some industry insiders have expressed optimism that Circle will be able to weather the storm, pointing to the company’s diverse sources of funding and potential options for covering any potential shortfalls. Adam Cochran, an investor, and entrepreneur, noted that Circle could potentially cover the $3.3 billion gap by using interest from its reserves, issuing new shares, or taking on venture debt.

Dante Disparte, the CSO of Circle, said that Circle is protecting USDC from a disastrous event in the US banking system. He warned that if SVB Financial, an important bank in the US, fails without federal support, it could affect many businesses and entrepreneurs.

Circle has acted quickly to limit its exposure to banks, and the majority of the USDC reserves are held in the Circle Reserve Fund, which mainly invests in short-term US treasuries and other US banks. Disparte emphasized the need for a well-functioning US banking system to support economic growth, and he called on policymakers, regulators, investors, businesses, and people to support this goal.

While the fallout from the SVB collapse is still unfolding, it is clear that the stability of the crypto industry is closely tied to the health of the traditional banking system. As crypto continues to grow and mature, it will be important for investors and companies to stay vigilant and ensure that they have robust risk management strategies in place to mitigate any potential shocks or disruptions.