USDC Records Largest Stablecoin Burn in History, Equating to $4.5 Billion Since March 10

Demand for converting USDC back to cash has surged in recent days, with net withdrawals exceeding $4.5 billion.

USDC Records Largest Stablecoin Burn in History, Equating to $4.5 Billion Since March 10. Image: CryptoSlate

According to blockchain data, Circle – the issuer of the second-largest stablecoin, USDC – has experienced a massive wave of withdrawals recently, following the severe depegging of USDC due to the recent banking collapses in the U.S.

The crisis began in mid-March when Silicon Valley Bank – a popular banking partner for venture funds and tech startups in Silicon Valley, California – was forced to sell off bonds to meet withdrawal demands. The bank run, which lasted for two days, ended with the U.S. government intervening and closing the bank. Circle revealed that it was heavily impacted, holding $3.3 billion in cash there, which accounted for over 8% of the total collateral backing USDC.

The string of bad news led to USDC depegging to as low as $0.87 – the lowest value for this stablecoin since its launch in 2018.

USDC Price Fluctuations Over the Past Week, Screenshot from CoinMarketCap at 09:25 AM on March 15, 2023

Circle subsequently issued a reassuring statement, pledging to cover the shortfall. By March 13, the U.S. government announced that all depositors at Silicon Valley Bank would be fully compensated by March 14, as the U.S. financial sector began its new week. Thanks to this guarantee, USDC gradually recovered to the $1 mark as Circle committed to recovering the full $3.3 billion locked at the bank.

From the time Silicon Valley Bank was seized by the U.S. government and shut down on Friday (March 10) until the early hours of Tuesday (March 15), The Block reported that over $6.2 billion in USDC had been withdrawn by holders and requested to be converted back to cash. During the same period, $1.66 billion in new USDC was issued, resulting in a net withdrawal amount exceeding $4.5 billion.

In its latest update, Circle revealed it processed $2.9 billion in withdrawal transactions on March 13, while issuing $0.7 billion in new USDC.

The market capitalization of USDC has dropped from $43.5 billion before the depegging to $38.2 billion at the time of writing, a decrease of $5.3 billion.

USDC Market Cap Fluctuations Over the Past Week, Screenshot from CoinMarketCap at 09:25 AM on March 15, 2023

Notably, a USDC burn transaction worth $723 million was recorded in the early hours of March 15, making it the largest USDC burn transaction in history. The second-largest burn transaction, valued at $656 million, also occurred on March 14.

The massive withdrawals, despite the stabilization of the situation, have severely impacted confidence in Circle and the USDC stablecoin. Researcher Steven Zhang from The Block commented:

"Although Circle continues to process withdrawal transactions and ensure collateral, it’s clear that USDC holders remain uneasy about the current situation. Circle also holds cash in several other banks, and if those banks face similar large-scale withdrawals as Silicon Valley Bank, it could lead to another USDC depegging. The risk-reward balance of holding USDC right now is something to consider."