Seeking Alpha
2023-03-11 16:15:36

USD Coin loses peg to dollar after disclosure of reserves at Silicon Valley Bank

USD Coin ( USDC-USD ) lost its peg to the dollar, touching an all-time low on Saturday, after the firm behind the coin, disclosed that some of the reserves backing the purported stablecoin were held at Silicon Valley Bank, which failed on Friday. The second-largest stablecoin traded at $0.92, -7.7% , at 11:02 AM ET, Saturday, and touched as low as $0.84, according to CryptoCompare. Stablecoins are intended to be pegged to a fiat currency, such as the U.S. dollar. USD Coin is an asset-backed stablecoin that's intended to equal a U.S. dollar. Circle's website says "every digital dollar of USDC can always be exchanged 1:1 for cash." Circle said $3.3B of the ~$40B of USDC reserves remain at the failed bank, via tweet. The Federal Deposit Insurance Corp. closed Silicon Valley Bank, owned by SVB Financial ( NASDAQ: SIVB ), after the bank was overwhelmed with requests for deposit withdrawals. While SVB is an FDIC-insured institutions, only $250K per account is insured by the FDIC. In a note on Friday, USB analyst Erika Najarian said 97% of SVB's deposit accounts have balances exceeding $250K. "Silicon Valley Bank is one of the six banking partners Circle uses for managing the ~25% portion of USDC ( USDC-USD ) reserves held in cash," the company said . "While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally." The FDIC said it will pay uninsured depositors and advance dividend within the next week and will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments will be made to uninsured depositors. On Friday, Circle said i t held $9.9B of cash at U.S. regulated financial institutions as of Jan. 17, including at Silicon Valley Bank. Last week it had pulled its "small percentage of USDC reserve deposits held at Silvergate ( SI ) to other banking partners. Recall that on March 8, Silvergate Capital decided to wind down operations and liquidate Silvergate Bank, part of the aftermath of the collapse of Sam Bankman-Fried's FTX.

Get Crypto Newsletter
Read the Disclaimer : All content provided herein our website, hyperlinked sites, associated applications, forums, blogs, social media accounts and other platforms (“Site”) is for your general information only, procured from third party sources. We make no warranties of any kind in relation to our content, including but not limited to accuracy and updatedness. No part of the content that we provide constitutes financial advice, legal advice or any other form of advice meant for your specific reliance for any purpose. Any use or reliance on our content is solely at your own risk and discretion. You should conduct your own research, review, analyse and verify our content before relying on them. Trading is a highly risky activity that can lead to major losses, please therefore consult your financial advisor before making any decision. No content on our Site is meant to be a solicitation or offer.