Uncertainty surrounds multi-billion dollar USDC empire as issuer Circle held reserves in Silicon Valley Bank

Update: Following publication and our first update to include Circle’s initial statement regarding USDC reserves, the company Announced that “3.3bn of the ~$40bn USDC reserves remain at SVB”, or just over a third of the cash the company had previously detailed it held in January. Following the news, the USDC has de-pegged from its $1 target and is currently trading around 92 cents on the dollar. About half an hour after Circle’s tweet last night, Coinbase saying that it was “temporarily stopping USDC:USD conversions over the weekend while banks are closed,” adding that it planned to “restart conversions” when banks open Monday.

While the world of startups digests the shocking implosion of the well-known financial institution Silicon Valley Bank, the consequences may also extend to the world of cryptocurrencies. As of January 17, one stablecoin in particular, USDC, was known to have held some of its backing capital in SVB, funds that are now likely to be illiquid for several days.

When TechCrunch reached out to Circle, the USDC issuer, for comment on the status of the stablecoin’s reserves, a spokesperson said: “We are working on this internally and I will keep you posted when I have a response to share. The company may have moved cash from SVB before it failed to do so on Thursday; it is also possible that the company has previously withdrawn funds from the bank since its last asset disclosures.

A Circle spokesperson said Friday that “Silicon Valley Bank is one of six banking partners Circle uses to manage the approximately 25% portion of USDC’s cash reserves. While we await clarity on how the FDIC receivership of SVB will affect its depositors, Circle and USDC continue to operate as normal.”

According to Circle’s January attestation report, the company had about $9.88 billion in cash on deposit with regulated banks to back the value of its stablecoin, among other assets. Allocations by bank were not disclosed, but cash was held at regulated financial institutions such as Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank (a division of Flagstar Bank, NA), Signature Bank, and, in In particular, Silicon Valley Bank and Silvergate Bank.

If Circle had more than a handful of cash in SVB, it could raise concerns that USDC support is no longer complete and is instead more fractional than is needed for a stablecoin to remain stable.

Two banks USDC mentioned using, SVB and Silvergate, made headlines this week for separate but similar reasons. SVB was taken over by regulators and shut down on Friday after the bank announced Wednesday that it lost $1.8 billion on the sale of US Treasury bonds and mortgage-backed securities it invested in, due to the increase in interest rates. Its efforts to raise more capital and reshape its capital profile to boost its interest income have failed to maintain investor and client confidence in its health.

Silvergate, a publicly traded cryptocurrency-friendly financial institution, shared on Wednesday that it would “voluntarily wind down operations and liquidate” its banking division, which some analysts anticipate will cause problems for the larger digital asset ecosystem.

However, last week Circle said it moved “the small percentage of USDC reserve deposits held at Silvergate” to other banking partners. “This process of winding down our relationship with Silvergate began last year, as signs of trouble and broader exposure to crypto asset risk became increasingly apparent.” This could limit the potential risk of stablecoin for unstable banking partners.

USDC is the second largest stablecoin by market capitalization with a circulating supply of $43.5 billion and over $6.3 billion in daily traded volume, up 92.33% in the last 24 hours, according to data from CoinMarketCap. At press time, the USDC was stable at its value of $1.

The stablecoin is pegged to the US dollar on a 1:1 basis and is backed by reserves consisting of a mix of cash and short-term US Treasury bonds. Of that circulating supply, about $11.4 billion in cash is held in reserve banks as of March 2, the Circle website claims. (Coinbase, which had a total of $2 billion worth of USDC on its books at the end of its fourth quarter in a hybrid of client and corporate funds, was down 8% today in regular trading.)

It’s also worth noting that USDC was launched by Circle and Coinbase in 2018, so it makes sense that Coinbase had a fair amount internally.

This story was updated at 4:32 pm PT Friday to include a statement from Circle.

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James D. Brown
James D. Brown
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