Circle Commits to Cover Asset Shortfall; USDC Recovers to $0.96

Stablecoin issuer Circle has provided the latest updates on USDC and its relationship with Silicon Valley Bank.

Circle Commits to Cover Asset Shortfall; USDC Recovers to $0.96

On the morning of March 12, Jeremy Allaire, CEO of Circle—the company behind the USDC stablecoin—released a statement regarding the recent fluctuations in USDC and the company’s plan of action moving forward.

Circle explained that while USDC operates 24/7, its backing assets are held in traditional banking and financial institutions, which are restricted by operating hours and regulatory constraints.

The conversion of USDC back to USD will resume as usual on Monday morning (U.S. time) when U.S. banks reopen, with the rate remaining 1 USDC to 1 USD.

Regarding the backing assets, USDC is supported by $32.4 billion in short-term U.S. Treasury bonds (1-3 months maturity) and $9.7 billion in cash held across multiple banks. BNY Mellon is the custodian for these bonds, with asset management overseen by BlackRock—both highly reputable names in the U.S. financial sector. Circle guarantees that these bonds are highly liquid and backed by the U.S. government.

The $9.7 billion in cash is held in three banks: $5.4 billion at BNY Mellon, $3.3 billion at Silicon Valley Bank, and $1 billion at Customers Bank.

After Silicon Valley Bank faced a liquidity crisis and was shut down by the Federal Deposit Insurance Corporation (FDIC) on March 10, the $3.3 billion at SVB is temporarily inaccessible until Monday, March 13. This amount represents 7.83% of the total assets backing the stablecoin.

Circle disclosed that they had requested to transfer funds from Silicon Valley Bank to other banking partners on March 9, prior to the FDIC’s intervention. However, they are awaiting FDIC’s guidance on whether transactions executed before the FDIC takeover will be processed on Monday.

Circle also acknowledged the possibility of not recovering the full $3.3 billion from Silicon Valley Bank. They affirmed their commitment to fully support USDC by covering any asset shortfall with the company’s own resources or external capital if necessary.

Following the depeg of USDC to $0.87 on March 11, the stablecoin has recovered to $0.96 thanks to reassuring statements from Circle. In the past 24 hours, USDC’s market cap dropped from $43.7 billion to $35.9 billion, and has now rebounded to $39.5 billion at the time of writing.

USDC Price at 09:15 AM on March 12, 2023, screenshot from CoinGecko

USDC Price Fluctuations Over the Past 7 Days, screenshot from CoinGecko at 09:15 AM on March 12, 2023

However, even if Circle manages to recover assets and bring USDC close to its $1 peg, the trust of certain projects and crypto investors in this stablecoin has been severely impacted in recent days. There is speculation that after Circle resumes USDC conversions to USD on Monday, a "bank run" targeting the stablecoin may continue. If the company fails to quickly raise $3.3 billion to cover the asset shortfall, the deficit relative to the stablecoin’s market cap could increase, threatening USDC’s stability.

Additionally, the broader U.S. banking sector is at risk of a widespread crisis due to Silicon Valley Bank’s collapse, potentially impacting other institutions holding Circle’s funds. Thus, the risks associated with USDC extend beyond just Silicon Valley Bank.

Currently, there are rumors that the FDIC might expedite the liquidation of some of Silicon Valley Bank’s assets this weekend, allowing depositors to withdraw 30-50% of their funds on Monday and Tuesday, with the remaining amount to be settled in subsequent liquidation and payout phases.