Stablecoin Firm Circle Announces $3.3 Billion Exposure for Silicon Valley Bank

(Bloomberg). — Circle Internet Financial Ltd, a stablecoin giant, said that $3.3 billion of its approximately $40 billion USD Coin reserves remained at Silicon Valley Bank. The bank collapsed on Friday in the worst US bank failures.

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USD Coin lost its closely watched dollar peg due to investors reacting to Silicon Valley Bank’s exposure. USD Coin trades under ticker USDC and fell below $1 on Friday evening in New York. Stablecoins such as USD Coin are designed to keep a 1-to-1 relationship with highly liquid assets like euro or US dollars. With a circulation of around $40 billion, Circle’s token is second only to Tether’s USDT.

According to an attestation report that was issued in March, Circle had around $8.7 trillion in cash at Silicon Valley Bank as of January 31. Circle invests in cash and three-month Treasuries, while the majority of its reserves are held in a BlackRock-managed money market fund. 25% of these reserves are held by Bank of New York Mellon. Citizens Trust Bank. Customers Bank. New York Community Bank. Signature Bank. Silicon Valley Bank.

Noelle Acheson, who writes a crypto newsletter and is the former head of market insights at Genesis Trading, said investor concerns about their exposure was reflected in the “uncharacteristically high volatility” in the stablecoin’s price. “Tether’s USDT, on the other hand, is heading up as traders rotate positions,” she said. “In yet another example of how weird markets are right now, it is astonishing to see USDT act more like the ‘safe’ stablecoin.”

Trading activity on a large decentralized exchange called Curve showed similar signs that traders were adjusting out of their positions in Circle’s stablecoin. Acheson said Curve’s 3pool protocol, which allows users to swap between Circle’s token, Tether and another stablecoin called DAI is now “severely out of balance” as users try to exit their USDC positions. The theory is that the supply of all three stablecoins should remain roughly equal. Curve Finance data shows that Tether made up just 6.4% of the pool, while USDC or DAI have over 40%.

“Unforseen SVB collapse and potential exposure of USDC to SVB created panic around it, so people started fleeing to USDT,” Michael Egorov, founder of Curve Finance, said in an email. The DAI token is almost considered a proxy for USDC, he explained. “DAI is not a safe haven in this regard because a lot of it is collateralized by USDC directly,” he said.

For hours on Friday, as other crypto companies issued statements firmly denying any exposure to Silicon Valley Bank, Circle would say only that it was “working internally on a response.” On Friday evening, an official Twitter account for the firm posted a tweet that said: “While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally.”

Just last week, Circle said it moved a “small percentage” of cash reserves held at Silvergate Capital Corp. to other banking partners after the troubled crypto-friendly bank said it was suspending its institutional SEN payments network.

Henry Elder, Wave Digital Assets’ head of decentralized financing, mentioned that diversification is a sign for strength.

“They have plenty of access to funding resources,” Elder said. “The idea to me that USDC is somehow existentially exposed seems pretty unlikely. You can see that almost every major stablecoin has experienced some uncertainty and doubt over the past two, three years. This is just the latest in a long line of uncertainty, and it’s probably going to be fine.”

Elder said he didn’t think that the Silicon Valley Bank collapse represented “an existential risk” to Circle’s stablecoin.

Tether and Binance, two of the largest crypto firms, used Twitter to inform their customers about potential risks from the bank’s failure.

Changpeng Zhao, Chief Executive Officer at Binance, the largest digital-asset exchange, said in a tweet that the firm doesn’t have exposure and its funds are safe. According to their official Twitter accounts statements, Paxos stablecoin and Gemini crypto exchange said that they had no relationship with the bank. Tether Chief Technology Officer Paolo Ardoino said in a tweet that the largest stablecoin doesn’t have exposure to SVB.

A court filing shows that BlockFi, a bankrupt crypo lender BlockFi, has approximately $227 mil in an account at the bankrupt bank.

Silvergate had already shaken the crypto sector earlier in the week. The California-based bank was one of a few US lenders that offered financial services to crypto firms. Crypto exchanges and market makers may find it more difficult to trade cryptocurrencies using US dollars because there is a smaller pool of crypto-friendly bank.

“I think that we will see a lot of volatility in USDC price over the weekend because USDC redemptions won’t work in that time – banks don’t work on weekends,” Curve’s Egorov said. “However, the situation might become better once redemption start working on Monday, and some traders will buy cheap USDC and redeem 1:1 to USD.”

–With the assistance of Beth Williams

(Updates with Circle disclosure on exposure to Silicon Valley Bank. The description of New York Community Bank was corrected in a previous update.

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