Circle, the operator of one of the world’s largest stablecoins, has said that $3.3 billion of its reserves are stuck in a Silicon Valley bank, triggering a decline in the value of its token as the crypto market closed two US banks this week. recovered from failure.
Circle’s announcement on Friday night prompted the company’s USDC crypto token to lose its peg to the dollar.
US exchange Coinbase said it was temporarily pausing conversions between USDC and the US dollar. Rival exchange Binance also said it would stop the automatic conversion of USDC to BSD, a stablecoin that carries the Binance branding.
Circle called for an immediate federal rescue plan for SVB.
The collapse of SVB, the second largest bank failure in US history, is another blow to the crypto market, which is still recovering from a crisis of confidence last year that ousted many of its biggest names.
Earlier this week, Silvergate, a US bank that attracted crypto customers, said it would cease operations after running out of deposits.
Stablecoins play an important role in connecting traditional and crypto markets, and traders use them to trade like cash or the crypto-native dollar. Most track the value of one to a major currency such as the dollar. With a high supply in circulation increasing revenue, stablecoin operators typically earn interest on traditional assets, which is less than their tokens.
Circle’s USD Coin is the second largest stablecoin in the crypto market with $42 billion in circulation according to company data.
The company said it had about a quarter of its USDC reserves in cash with six banking partners, of which SVB was one. Most of its $40 billion in reserves are held in short-term US government bonds and other US banks.
“It’s not just cryptocurrencies that are under pressure: Now even the banks supporting the industry are failing. And stablecoins like USDC are a way for many investors to get into and out of crypto,” former head of US regulator Commodity Futures Trading Commission of staff Charlie Cooper said.
“Danger for reserve-backed people too [stablecoin] The model calls into question the feasibility of the intersection between crypto and traditional finance,” he said.
Circle chief strategy officer Dante Disparte warned on Saturday that the company is protecting its stablecoin from a “black swan failure in the US banking system.”
“SVB is a vital bank in the US economy and its failure – without a federal rescue plan – would have cascading effects for business, banking and entrepreneurs,” he tweeted.
Circle said it will continue to operate as normal while it awaits clarity from US regulators on how the SVB failure will affect its depositors, Circle and USDC. It did not immediately respond to a request for comment.
According to industry price tracking website Coinmarketcap, the USDC token has traded as low as 88 cents on the dollar since the collapse of SVB.
Circle disclosed cash held at several US regulated financial institutions, including Silvergate and SVB.