The supposedly “stable” cryptocurrency USDC fell sharply after the company that created it, Circle, announced it has $3.3 billion in the bankrupt Silicon Valley Bank (SVB) and dropped its peg to the dollar.
Circle said late Friday it had been unable to withdraw its reserves from SVB, whose sudden collapse shook financial markets.
The Federal Deposit Insurance Corporation on Friday acquired SVB, a major lender to the tech world, in the second largest bank failure in US history.
SVB is expected to reopen under a new name on Monday, with billions in customer deposits now under the control of the FDIC.
The FDIC guarantees deposits – but only up to $250,000 per customer and per bank.
The agency said Friday it would issue certificates to clients with uninsured funds — those above the $250,000 limit — so that they would be the first to eventually receive recovered funds while the bank is in receivership.
But the process of liquidating the bank’s assets can take a long time, with no certainty as to exactly how much will be recovered.
The USD coin, or USDC, was launched in 2018 as a “stablecoin”, meaning it was indexed to a currency backed by a central bank, in this case the US dollar.
It is listed as the second largest “stable” currency in the world, based on volume in circulation (about $40 billion), behind Tether.
Stablecoins are believed to be backed by equivalent reserves in readily available assets, either cash or readily convertible financial securities.
Overnight from Friday to Saturday, the USDC fell to an all-time low of 87 cents before recovering to around 94 cents.
Other stablecoins have also suffered.
The Dai, the fourth largest stablecoin in circulation by volume, fell to 95 cents, while the Frax (sixth largest) fell to 94 cents, the lowest ever.
Cryptocurrency exchange platform Coinbase said it was suspending USDC to dollar conversions until Monday given the exceptionally high activity.
Over $25 billion in USDC had been traded on the Coinbase platform in 24 hours, a huge volume compared to total holdings.
Meanwhile, Binance, the largest cryptocurrency transaction site, said it was suspending conversions from USDC to BUSD — Binance USD, the platform’s own “stable” currency.
“Like other customers and savers who have relied on SVB for banking services, Circle joins the call for continuity of this important bank in the U.S. economy and will follow guidance from state and federal regulators,” Circle said in a statement. declaration.
SVB’s withdrawal orders reached a breathtaking $42 billion in one day on Thursday, according to the California Department of Financial Protection and Innovation.
When the bank was unable to meet all those requests, the FDIC stepped in to take control.
(Except for the headline, this story has not been edited by NDTV staff and is being published from a syndicated feed.)
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