The popular stablecoin USDC has lost its peg to the US dollar amid the unfolding collapse of the California bank Silicon Valley (SVB). This happened after the USDC issuer, Circle, announced that $3.3 billion of its reserves were kept in a troubled bank.
According to Bitstamp, at the time of writing, the stablecoin is trading at 0.89443 USDT.
1/ Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.
— Circle (@circle) March 11, 2023
USDC capitalization fell sharply – in less than a day, the indicator lost 13%. Major cryptocurrency exchanges rushed to ban USDC to US dollar conversions – Coinbase and Binance released official notices on their Twitter accounts.
We are temporarily pausing USDC:USD conversions over the weekend while banks are closed. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions.
— Coinbase (@coinbase) March 11, 2023
Binance explained its actions as follows: “This is a normal procedural risk management step that needs to be taken while we monitor the development of the situation.” Coinbase said that the conversion will be available on Monday, when banking operations resume (Silicon Valley Bank did not dare to directly mention the exchange).
On Friday evening, the California Department of Financial Protection and Innovation shut down Silicon Valley. The American regulator – the Federal Deposit Insurance Corporation (FDIC) – will now manage all the bank’s operations. The 16th largest U.S. bank went bust after depositors worried about the bank’s balance sheet – mainly tech and venture capital firms – decided to withdraw their money this week. SVB has been called the tech bank because its clients were mostly Silicon Valley startups.
As it turned out, large crypto companies also kept their funds there.
Despite the difficulties, Circle was quick to reassure its clients: “While we wait for clarity on how receiving the FDIC ban will affect the SVB of its contributors, Circle and USDC continue to operate as usual.”
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