The second-largest stablecoin in the crypto market fell as low as 81.5 cents on Saturday as issuer Circle Internet Financial suffered losses from the sinking Silicon Valley Bank.
The USD Coin, or USDC, functions as a key asset of the crypto markets and has a stable value of $1 backed entirely by cash reserves and short-term Treasuries. But of the roughly $40 billion in reserves, $3.3 billion was held at Silicon Valley Bank, which went on to become one of the largest U.S. bank failures in recent history.
Investors expect greater clarity on the return of deposits as regulators seized the bank on Friday. In this gap, USDC fell below $1, trading at around 92 cents as of Saturday morning in London.
Panic did not spread to Tether
Worries have not spread to Tether, the best stablecoin ever held at $1. Tether has previously been subject to scrutiny over its reserves.
Dante Disparte, Circle’s Chief Strategy Officer, described Silicon Valley Bank’s (SVB) decline as a “black swan failure” in the US financial system, saying it would have “broader implications for business, banking and entrepreneurs” without a federal bailout.
According to CoinGecko data, USDC has a circulating supply of approximately 41 billion tokens and a market cap of roughly $37 billion. According to blockchain research firm Nansen, a net $2 billion USDC has been redeemed in the last 24 hours. Data compiled by Bloomberg showed USDC trading as low as 81.5 cents.
Stable currencies such as USDC are intended to hold a certain value against another highly liquid asset such as the US dollar. They come in various forms, and some, like Circle’s, are backed by cash and bond reserves. Investors generally prefer to keep their funds in stablecoins when moving between crypto trades.
As sales in USDC deteriorated, US-based crypto exchange Coinbase Global Inc. said it will “temporarily pause” converting USDC to US dollars over the weekend and restart when banks open on Monday.
The decline in USDC has had a knock-on effect on decentralized finance applications that allow users to trade, borrow and lend coins and tend to rely heavily on trading pairs containing stable coins.
“If there is no concrete recovery plan this weekend, I think the markets will go bad again next week,” Teong Hng, CEO of crypto investment firm Satori Research, said of the failure of the SVB.
The Troubles of Krypton
The crypto industry has already been reeling from a protracted slump that has wiped $2 trillion from the value of digital assets since November 2021 and precipitated a string of bankruptcies such as TerraUSD stablecoin, Three Arrows Capital hedge fund and FTX exchange.
The TerraUSD token, known as UST, tried to use a suite of algorithms that included a sister token, Luna, to maintain its value. This system wiped out nearly $60 billion in assets, intensifying scrutiny of stablecoins by global regulators.
Haohan Xu, CEO of Apifiny, an institutional trading platform, said, “I think the market is ‘panic pricing’ USDC just as it has priced USDT around the Luna crash. This is Circle’s risk in SVB and Coinbase’s USDC conversion. It is driven by the shutdown of its function”.