- Circle said it failed to remove $3.3 billion from Silicon Valley Bank.
- SVB is under FDIC receivership following its collapse.
- USDC depegged following the news, falling 8% to hit lows of $0.91 on Saturday morning.
Circle, the blockchain payments company that issues the USDC stablecoin, has confirmed that $3.3 billion worth of USDC reserves are stuck at the troubled Silicon Valley Bank.
USDC depegs as Circle confirms $3.3 billion SVB exposure
In a tweet late Friday, Circle noted that efforts to remove its balances from the bank had failed on Thursday, meaning $3.3 billion of the stablecoin’s cash reserves remain at the bank.
“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,” the firm noted.
In a follow up tweet as it confirmed the exposure to the collapsed bank, the firm noted:
“Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow guidance provided by state and Federal regulators.”
Circle had earlier disclosed that SVB was one of six banking partners that held roughly 25% of the cash reserves for USDC. That includes Signature Bank and Silvergate Bank that recently announced it was liquidating.
The full list of banks that held cash for Circle’s USDC are Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank (a division of Flagstar Bank, N.A.), Signature Bank, Silicon Valley Bank and Silvergate Bank.
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— unusual_whales (@unusual_whales) March 11, 2023
Even as sentiment veered south, Circle had noted that it continued to “operate normally,” hinting that it was waiting for clarity on the impact of SVB’s FDIC receivership on depositors before providing more details.
But with uncertainty rising, USDC lost its dollar peg, falling more than 8% to lows of $0.91 early Saturday.
“A black swan failure in US banking system”
Dante Disparte, the Chief Strategy Officer & Head of Global Policy at Circle, also commented on the unfolding events, noting that the company was “protecting USDC from a black swan failure in the US banking system.”
“[SVB] is a critical bank in the US economy and its failure – without a Federal rescue plan – will have broader implications for business, banking and entrepreneurs,” he added.
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On Tuesday, Circle announced that $3.3 billion of its USDC reserves was stuck at Silicon Valley Bank due to a conflict between the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), a conflict caused by the emergence of stablecoins and other digital currencies.
Silicon Valley Bank, a large U.S. bank, has been a partner of Circle for several years, issuing the USDC stablecoin and providing banking services for Circle’s core businesses. According to some reports, this dispute began when the OCC granted permission for banks to hold cryptocurrencies in July, prompting the FDIC to develop guidelines for the same early this month.
FDIC’s guidance, however, has put Silicon Valley Bank in a difficult position; on one hand, it wants to remain compliant with the OCC and modernize its banking services through digital currencies, while on the other hand, FDIC’s guidance prevents it from fully integrating those services. This has resulted in Silicon Valley Bank refusing to release funds that have been held in its custody since July.
Circle, meanwhile, says its talks with Silicon Valley Bank have been productive, and is confident that the funds in question will be released soon. It is also considering launching a decentralized finance (DeFi) banking protocol to offer a broader range of services and to alleviate this kind of uncertainty in the future.
The whole incident has once again highlighted the disconnect between U.S. regulators and the emerging digital currency economy. It is of utmost importance for the two entities to work together more closely and develop more conducive legislation that does not put banking partners in a difficult position.
The current situation has also raised questions about the safekeeping of funds in the banking system, and how these funds can be better utilized by cryptocurrency companies. It remains to be seen how the matter resolves, but one thing is certain – it is essential to find a way to make these new asset classes more compatible with existing regulations.