USDC Crisis Averted? Federal Regulators Offer Reassurance to Silicon Valley Bank Depositors, Ensuring Access to Funds
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The popular stablecoin USDC has regained its $1 peg price after regulators in the US assured that depositors in Silicon Valley Bank (SVB) can access their money today.
The assurance from the government means that all Silicon Valley Bank depositors will be made whole, despite the bank’s collapse and wipeout of investor money. USDC issuer Circle was among the depositors in the bank, and stood to lose approximately $3.3bn in the bank collapse.
Circle’s total reserves for USDC at the time stood at approximately $40bn, but the loss in SVB was still significant enough to cause a temporary de-peg for USDC. On Saturday and Sunday, USDC for long periods traded in the $0.90 to $0.95 area.
As of Monday morning, USDC had regained its peg after Circle promised that all outstanding USDC tokens could still be redeemed for $1, even if the company would need to finance it with external capital.
“[Circle] will stand behind USDC and cover any shortfall using corporate resources, involving external capital if necessary,” the company said in its statement.
DAI de-pegs…and recovers
Along with the USDC recovery, the decentralized stablecoin DAI, which is partly backed by USDC, also regained ground on Sunday and Monday. The dollar-pegged token fell along with USDC on Saturday to lows around the $0.90 level, but has since traded back up towards the $1 level.
At the time of writing, DAI traded at $0.999, up 3.2% over the past 24 hours, per data from CoinGecko.
Regulators step in
The recovery for both stablecoins came about after US regulators on Sunday stepped in and promised that depositors in the bank would get access to all of their funds, despite the closing of the banks. This has helped the market regain confidence in the coins, sending them back up to their $1 peg price as of press time.
The promise came in the form of a joint statement from the Department of the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC). The three regulators said they expect the move to “protect the U.S. economy by strengthening public confidence in our banking system.”
Fed makes “additional funding” available
Later, a separate statement from the Federal Reserve said that the central bank will make available “additional funding” to banks to ensure they have the ability to honor withdrawals.
“The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral,” the Fed’s statement said.
Circle “heartened” to see government action
In a comment posted on Twitter, Circle CEO Jeremy Allaire said he was “heartened” to see the government take action. He noted that 100% of deposits at SVB are secure and available, and said his company will not transfer its deposit in SVB to BNY Mellon.
“We are committed to building robust and automated USDC settlement and reserve operations with the highest quality and transparency,” the Circle CEO added.
Additionally, we will be bringing on a new transaction banking partner with automated minting and redemption potentially as soon as tomorrow.
— Jeremy Allaire (@jerallaire) March 12, 2023
We are committed to building robust and automated USDC settlement and reserve operations with the highest quality and transparency.
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