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Circle Internet Financial said Saturday it will “cover any shortfall” in the assets backing its stablecoin USDC in the event it does not receive the entirety of a $3.3 billion cash reserve it was holding at Silicon Valley Bank.
In a blog post, Circle said it “will stand behind USDC and cover any shortfall using corporate resources, involving external capital if necessary.”
The pledge came as crypto traders fretted over the value of USDC, a stablecoin meant to be pegged to the U.S. dollar but which fell in value after Silicon Valley Bank’s collapse. Circle was holding $3.3 billion of USDC’s cash backing at Silicon Valley Bank when the FDIC seized the bank’s assets on Friday.
Circle said it attempted to move its assets out before SVB’s collapse and that the transaction could settle on Monday, when U.S. banks resume normal operations.
“However, it is also possible that SVB may not return 100% and that any return might take some time, as the FDIC issues IOUs (i.e., receivership certificates) and advanced dividends to deposit holders,” Circle said.
The value of the stablecoin fell as low as $0.88 in last 24 hours, before rebounding to $0.97, after the announcement, according to Coingecko
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The USDC stablecoin rally is continuing after administrators of the USD-backed digital currency declared they would use the “Circle USDC Reserve” to “cover any shortfall” in reserves.
Launched in 2018, USDC (U.S. dollar coin) is an open source, fully collateralized and regulated stablecoin that supports a variety of applications and financial services. The American stablecoin is backed by the U.S. dollar on a 1:1 basis and its cryptocurrency price is pegged to the dollar with little fluctuation.
The particular “Circle USDC Reserve” is an emergency reserve system which has been set up by the two major issuers, Circle and Coinbase. The reserve is designed to serve as a buffer in case of any temporary changes in demand. The news that the reserve would be used to “cover any shortfall” has seen demand for USDC surge and the price reach an all-time high.
The supporting commentary has been positive, with Coinbase stating: “USDC has attracted considerable liquidity due in part to the unique way Circle and Coinbase back the asset by holding dollar reserves and publishing regular attestations.”
Increasing demand for USDC also has implications for other stablecoins, with USDT, True USD, and Paxos all seeing an increase in value. This reflects users’ preferences for certain stablecoins over others.
Stablecoins are increasingly popular as a crypto asset and provide users with several advantages. They offer the possibility for fast, low-cost payments and are becoming popular for users in countries with weaker currencies and financial systems. The guarantee of liquidity and trust also makes them a much more attractive option when compared to some other coins.
The utilization of the Circle USDC Reserve has certainly had a positive effect on the USDC stablecoin, fueling a bullish rally which has seen the price reach an all-time high. The implications may also be felt in other areas as we look towards the future of stablecoin use.
