U.S. cryptocurrency firm Circle has $3.3 billion of its $40 billion of USD Coin reserves at the collapsed lender Silicon Valley Bank, the company said in a tweet on Friday. The stablecoin company’s announcement comes after startup-focused SVB collapsed on Friday in the largest bank failure since the 2008 financial crisis, roiling global markets and stranding billions of dollars belonging to companies and investors.
Circle held around $8.7 billion in cash at banks including Silicon Valley Bank as of Jan. 31, according to an attestation report issued earlier in March. Circle keeps a majority of its reserves in a BlackRock-managed money-market fund which invests in three-month Treasuries and cash. The rest of those reserves, representing 25% of the total, is held across Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank, Signature Bank and Silicon Valley Bank.
Noelle Acheson, who writes a crypto newsletter and is the former head of market insights at Genesis Trading, said investor concerns about their exposure was reflected in the “uncharacteristically high volatility” in the stablecoin’s price. “Tether’s USDT, on the other hand, is heading up as traders rotate positions,” she said. “In yet another example of how weird markets are right now, it is astonishing to see USDT act more like the ‘safe’ stablecoin.”
Trading activity on a large decentralized exchange called Curve showed similar signs that traders were adjusting out of their positions in Circle’s stablecoin. Acheson said Curve’s 3pool protocol, which allows users to swap between Circle’d token, Tether and another stablecoin called DAI is now “severely out of balance” as users try to exit their USDC positions. In theory, the supply of the three stablecoins should be held roughly in line. But data on Curve Finance shows just about 6.4% of the pool was Tether, while USDC and DAI both have more than 40% of the supply.
“Unforseen SVB collapse and potential exposure of USDC to SVB created panic around it, so people started fleeing to USDT,” Michael Egorov, founder of Curve Finance, said in an email. He explained the activity in the DAI token by noting that traders treat it as almost a proxy for USDC. “DAI is not a safe haven in this regard because a lot of it is collateralized by USDC directly,” he said.
Circle said it is required to cover any shortfall caused by SVB’s failure and will seek outside financing if necessary. USDC lost its peg shortly after SVB collapsed and dropped to as low as $0.88. The company has $3.3 billion of its reserves behind the stablecoin in the failed bank, which is popular among tech firms. Regulators closed SVB on Friday and the Federal Deposit Insurance Corporation stepped in as the bank’s receiver.
