USDC stablecoin crashes 12%, what’s going on?

It was announced a few hours ago that Circle, the issuer of the second-largest stablecoin USDC, had significant exposure to Silicon Valley Bank (SVB). In total, there would be $3.3 billion in USDC stablecoins at the already fallen bank are housed. As a result of this news, USDC lost its peg to the US dollar. USDC was even briefly below $0.90.

The downfall of SVB

Everything started when it became known that SVB was closed by US regulators. SVB was not just any bank, and it is one of the largest bank failures in the history of the United States. Naturally, many other companies had money with SVB, including Circle.

Circle itself stated this on Twitter. Just before the bank implosion, the company says it tried to withdraw the $3.3 billion in USDC from SVB, but was unable to do so in time. As a result, these stablecoins now stuck with a bank that no longer functions. What will happen to these funds is still unknown.

In total, Circle has approximately $40 billion in reserves for USDC. The $3.3 billion that is now tied up with SVB therefore represents a significant part of this reserve. Many crypto investors have been reminded of the demise of Terra LUNA by this news and have sold their USDC as soon as possible.

USDC crashes

This led to the price of the stablecoin, which is normally supposed to be exactly $1, crashing by more than 10%. At some crypto exchanges the value of USDC was briefly just $0.87. At the time of writing, however, this value has recovered somewhat to above $0.92. Nevertheless, there is still a decoupling between USDC and the dollar.

It is impossible at this time to determine what the consequences of the SVB debacle will be for Circle and USDC. $3.3 billion is a lot of money, but it is still all but certain that Circle will actually lose this amount. According to the FDIC, an American regulator that has since taken over the management of SVB, customers will sooner or later get their money back, or at least part of it. Time will tell what the final score will be in yet another saga in the crypto market.

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