On March 10, Blockchain payment tech company and USD Coin (USDC) issuers Circle confirmed that wires initiated on Thursday to remove balances have not yet been processed, leaving $3.3 billion of its $40 billion USDC reserves at Silicon Valley Bank (SVB).
Concerns have been growing over USDC late this week due to Circle disclosing in its latest audit that as of Jan. 31, $8.6 billion, or roughly 20% of its reserves, was held up in several financial institutions, including the recently bankrupted Silvergate, and shuttered SVB.
In a bid to provide transparency on the matter, Circle disclosed via Twitter on March 10 that:
“Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.”
Circle said it is now joining other customers and depositors in calling for the continuity of SVB, which the company alleged is important for the U.S. economy. Circle stated on Twitter that it will follow guidance provided by state and Federal regulators.
2/ Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow guidance provided by state and Federal regulators.
— Circle (@circle) March 11, 2023
Adding to Circle’s statement, the firm’s chief strategy officer and head of global policy emphasized that “Circle is currently protecting USDC from a black swan failure in the U.S. banking system,” as he called for a SVB rescue plan from the Federal Deposit Insurance Corporation (FDIC):
Without a Federal rescue plan – will have broader implications for business, banking and entrepreneurs.
We join the calls from policymakers, regulators, investors, businesses and, most of all, people who rely on a well-functioning U.S. banking system as a condition precedent of growing an economy. We will all be smarter on Monday.
— Dante Disparte (@ddisparte) March 11, 2023
Notably, prior to the announcement USDC was sitting below its $1-peg at $0.98 as per CoinGecko data, however promptly after, the price has dropped significantly to $0.93 at the time of writing.
The statement followed news that Silicon Valley Bank, a major financial institution for venture-backed companies, was shut down by California’s financial watchdog, making it the first Federal Deposit Insurance Corporation-insured bank to fail in 2023.
Although the exact reason for the closure remains unclear, the California regulator appointed the FDIC as the receiver to protect insured deposits. SVB, one of the United States’ 20 largest banks by total assets, provided financial services to several crypto-focused venture firms, including Andreessen Horowitz and Sequoia.
Coinbase and Binance pause USDC conversions
Adding to the USDC related woes, roughly 30 minutes after Circle’s latest statement, Coinbase announced that it is “temporarily pausing USDC:USD conversions over the weekend while banks are closed.”
“During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions,” the firm stated.
We are temporarily pausing USDC:USD conversions over the weekend while banks are closed. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions.
— Coinbase (@coinbase) March 11, 2023
Such a move highlights the difficulty that centralized crypto companies are facing now that Silvergate is longer providing them with round the clock banking services.
On the same day, Binance also announced via Twitter that the crypto exchange has “temporarily suspended auto-conversion of USDC to BUSD due to current market conditions, specifically related to high inflows & the increasing burden to support the conversion.”
Binance has temporarily suspended auto-conversion of USDC to BUSD due to current market conditions, specifically related to high inflows & the increasing burden to support the conversion.
This is a normal risk-management procedural step to take while we monitor the situation.
— Binance (@binance) March 11, 2023
“This is a normal risk-management procedural step to take while we monitor the situation,” the firm added.