USDC Stablecoin as Crypto Exhales Towards Peg After Being Halted by SVB Exposure

(Bloomberg) — Crypto’s second-largest stablecoin rebounded toward its intended $1 dollar peg as issuer Circle Internet Financial Ltd. pledged to cover any shortfall from a $3.3 billion reverse held at Silicon Valley Bank.

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The USD coin, a major plank in crypto markets, climbed as high as $1 and was trading at 98.2 cents as of 10:50 a.m. Sunday in Tokyo. The coin previously fetched less than 85 cents in depeg which sent a shiver through the digital asset.

Circle reiterates its stablecoin, also known as USDC, is fully backed by $42.1 billion in cash and the US Treasury. The company said as of Thursday $3.3 billion in outbound transfers had yet to begin at the Silicon Valley bank, but expressed confidence in US regulatory efforts to manage the overall situation.

Circle said it is possible “SVB may not return 100% and any return may take some time,” in which case the firm “will stand behind USDC as required by law under the Stored Value Money Transmission Regulation.” and will cover any shortfall using corporate resources, including outside capital if necessary.

Volatility in USDC, which is one of the safest assets in crypto with a value of $1, was spread to other stablecoins such as Dai and Pax Dollar, but they also pushed closer to their pegs. Top stablecoin Tether or USDT – which has previously faced scrutiny over its reserves – said on Friday it poses no risk to a Silicon Valley bank and is stable at $1 or more.

“Some have had a two-way flow, going in and out of USDC,” said Spencer Hallern, a derivatives trader at investment firm GSR. Some investors have moved to Tether as “a temporary hiding place,” while on the other hand, traders are “doing the math about potential losses and value buying” USDC, he said.

race for deposits

On Friday, Silicon Valley Bank Bank became the largest US lender to fail in more than a decade. Deposits up to the Federal Deposit Insurance Corporation’s $250,000 protected limit are set to become available on Monday.

Regulators are racing to sell assets and provide a portion of customers’ uninsured deposits as quickly as possible – figures floating behind the scenes for initial payment limits range from 30% to 50% or more.

In earlier tweets, Circle chief strategy officer Dante Disparte described the collapse of the Silicon Valley bank as a “black swan failure” in the US financial system, saying that without a federal rescue plan there would be “widespread risks for business, banking and entrepreneurs”. effect”. ,

Stablecoins must have a set value against highly liquid assets such as the US dollar. Some, like Circle, are backed by reserves of cash and bonds. Investors often put money into stablecoins when they move between crypto trades or use blockchain-based financial services.

‘Situation will improve’

Data from CoinGecko shows that USDC has a circulating supply of approximately 41 billion tokens with a market capitalization of approximately $40 billion. Billions of dollars worth of tokens have been redeemed by traders since Friday.

US-based crypto exchange Coinbase Global Inc said it will “temporarily pause” the conversion of USDC into US dollars during the weekend, and will resume on Monday when banks open.

“It’s likely USDC will improve,” wrote Noel Acheson, author of the “Crypto Is Macro Now” newsletter. “Monday should bring news on a solution for SVB depositors, and Circle will be able to recover at least some of the funds in the short term, while receiving exchangeable notes for the rest.”

The volatility in USDC had a knock-on effect on decentralized finance – or DeFi – applications, which tend to rely heavily on trading pairs involving users to trade, borrow and lend coins and stablecoins . On Saturday, members of the DeFi community who run DAI proposed changes to the mechanism that helps reduce the risk of USDC holding its stablecoin to $1.

challenges of crypto

The crypto sector continues to grapple with a long run that has slashed $2 trillion from the value of digital assets since November 2021, triggering a series of explosions such as the algorithmic TeraUSD stablecoin, the Three Arrows Capital hedge fund, and the FTX exchange.

The TeraUSD token — known as UST — tried to use a mix of algorithms and merchant incentives tied to a sister token, Luna, to maintain its value. The $60 billion wipeout of that system intensified regulatory scrutiny of stablecoins.

“Markets ‘panic priced’ USDT around the Luna collapse like USDT was priced in,” said Haohan Xu, chief executive of institutional trading platform Epiphany.

Broader digital-asset markets are reeling off a week of losses. Bitcoin is down about 9% during this period, the most since the collapse of Sam Bankman-Fried’s FTX platform following a 23% weekly drop in November.

For crypto market prices: CRYP; For top crypto news: Top Crypto.

– With assistance from Suwashree Ghosh, Olga Kharif, David Pan and Xiyin Chen.

(Update with USDC’s partial rebound from first paragraph.)

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