Circle Vows to Cover “Any Shortfalls” in USDC Collateral

What is USDC?Everything You Need to Know About Stablecoins

If Circle fails to return some of the stablecoin reserves held in the Silicon Valley Bank account in full and in time, Circle will use company funds and “external funds” to support USDC.

On Friday, March 10, the California Department of Financial Security and Innovation shut down Silicon Valley Bank (SVB) and appointed the FDIC as administrator. The reason was “insufficient liquidity and insolvency”. Depositors at credit institutions “will have full access to insured deposits until the morning of Monday, March 13,” the regulator noted.

Circle and Coinbase are part of the Center consortium, which is the issuer of USDC. On March 11, the company announced that it holds partial reserve collateral ($3.3 billion) of SVB assets.

Against this backdrop, stablecoins lose parity against the dollar. According to CoinGecko, its price hit an all-time low near $0.88. At the time of writing, the asset has recovered somewhat and is trading around $0.96.

price usdcData: CoinGecko.

In a subsequent blog post, Circle said that Bank of America issued and redeemed USDC “limited to business hours.”

“USDC liquidity operations will resume as usual following the reopening of U.S. banks Monday morning. […] As a regulated payment token, USDC will continue to be exchanged 1:1 for U.S. dollars,” the statement said.

According to the FDIC website, the standard deposit insurance amount is $250,000 “per depositor, one insured bank, account holder of all types.”

The stablecoin’s joint issuer acknowledged that the asset’s return could take a long time. The company also acknowledged that the agency’s plan would not provide full payment:

“SVB may not give 100% back [средств]Any transaction can take some time as the FDIC issues debt certificates and prepaid quotas to depositors.In this case, Circle, as required by law […], will support USDC and cover any shortfalls with corporate resources and raise external funding as needed. “

According to Circle principal Jeremy Allair, 77% of USDC reserves are treasury bonds and 23% are cash “held in various institutions.” In addition to SVB, the company also uses the services of BNY Mellon, BlackRock and Signature Bank.

Algorithmic stablecoins have also lost parity with the U.S. dollar due to the USDC depeg, which allows the asset to be used as collateral for issuance. In particular, MakeDAO’s DAI and Frax Finance’s FRAX lost their pegs.

The latter also rallied on the back of Circle’s statement. According to CoinGecko, both are trading near the $0.96 mark at the time of writing.

Recall that Elon Musk acknowledged the possibility of buying Silicon Valley Bank.

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Information source: compiled from FORKLOG by 0x Information.Copyright belongs to the author Артем Галунов, without permission, may not be reproduced

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