On Saturday, USD Coin (USDC), Circle’s stablecoin, lost its link to the dollar after crypto bank Silicon Valley Bank closed its doors. The stablecoin even briefly dipped below 90 cents while it should be stable at $1.
This ‘depeg,’ or decoupling, of one of the largest stablecoins in the crypto sector created panic. This morning, the USDC re-established its link with the dollar, which is likely related to this announcement from the Federal Reserve. However, the stablecoin does not look very stable yet.
US government offers rescue
USDC’s issuer, Circle, was found to have more than $3 billion exposure to the bankrupt Silicon Valley Bank. Users sold their USDC en masse which drove the price of USDC down. The scene was somewhat reminiscent of the Terra (LUNA) implosion, but now it looks like the damage is limited.
The US government and the Federal Reserve have announced a financial rescue plan for banks with liquidity problems. The $25 billion plan is designed to generate liquidity so that troubled banks can accommodate their customers at all times. This plan also benefits Silicon Valley Bank and Circle.
USDC and crypto rates are reacting positively
The news immediately resulted in a positive reaction on the crypto markets. USDC also quickly climbed back towards $1 in response to the news. On Sunday, Circle’s CEO announced via Twitter that all USDC reserves are safe.
Update thread on USDC
We were heartened to see the US government and financial regulators take crucial steps to mitigate risks extending from the fractional banking system.
100% of deposits from SVB are secure and will be available at banking open tomorrow.
— Jeremy Allaire (@jerallaire) March 12, 2023
“We are thrilled with the news that the US government and regulators are taking the necessary steps to mitigate risks from the fractional banking system. 100 percent of Silicon Valley Bank deposits are safe. All USDC reserves are also safe.”
Said Circle CEO Jeremy Allaire. De grote crypto exchange Coinbase has indicated to resume all USDC conversion services from Monday. For the time being, peace seems to have returned to the crypto sector. Still, at the time of writing, the USDC rate is dropping back below $0.99.