Circle Unable to Withdraw $3.3 Billion from SVB, Causing USDC Sell-Off
Circle is a fintech company headquartered in Boston that utilizes blockchain technology to provide payment and investment services. The company, in collaboration with Coinbase, introduced USDC, a stable coin pegged to the US dollar at a 1:1 ratio. As of March 2022, USDC has emerged as one of the fastest-growing stablecoins, with a market capitalization of over $10 billion.
Silicon Valley Bank (SVB) is a California-based bank that offers banking services to technology and life science firms. It is one of the largest banks in the United States and has been a crucial partner for Circle in managing its reserves. Nonetheless, SVB recently declared that it would be winding down its operations due to regulatory issues, raising concerns about Circle’s reserves that the bank is holding.
On March 9, Circle initiated a wire transfer to withdraw its funds from SVB. However, Circle announced two days later that the transfer was not fully processed, resulting in $3.3 billion in USDC reserves being left with SVB. The announcement triggered a sell-off of USDC, causing the stable coin’s value to drop below its $1 peg. As of March 2022, USDC is trading at $0.8774, representing a decline of over 10% from its previous value.
The situation has brought up concerns about USDC’s stability and the broader implications of SVB’s failure. In a statement, Circle’s Chief Strategy Officer, Dante Disparte, cautioned that SVB’s collapse could have far-reaching consequences for the US economy, especially for businesses, banking, and entrepreneurs. He urged the government to implement a federal rescue plan to mitigate the economic harm.
Moreover, this situation highlights the risks involved in using stablecoins, digital currencies designed to maintain a stable value. Stable coins are commonly used in cryptocurrency trading and as a payment method, but they are not immune to market fluctuations and other risks. Furthermore, the absence of regulation and oversight in the stable coin market has raised concerns about their reliability and stability.
In response to the matter, Circle has assured its users that their USDC holdings are backed by reserves held in other banks. The firm has also stated that it is working to address the issue with SVB and is exploring alternative banking partners. Nonetheless, this event has raised concerns about the risks of utilizing stablecoins and the need for greater market oversight and regulation.
Courtesy: News shared from Blockchain.news