Circle’s Disparte Discusses Systemic Risks Posed by Banks to Crypto

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Dante Disparte, chief strategy officer and global policy head of Circle Internet Financial, spoke on the systemic risks posed by traditional banking systems to the crypto sector during an interview for a upcoming Word The Block episode. As the largest stablecoin issuer, Circle USDC is second in market capitalization.

Disparte expressed concern over the lack of confidence in banks, citing the closure of Silicon Valley Bank and Signature Bank as evidence of the danger traditional financial institutions pose to the crypto industry. “The bank failures in the US have demonstrated that banks are introducing risk to crypto assets, instead of the other way around,” said Disparte.

USDC, a dollar-backed stablecoin, has a value equal to US dollars. It stands as the fifth-largest cryptocurrency and currently has a market cap of US$39.5 million.

USDC broke its dollar peg this weekend, following the disclosure that Circle SVB holds US$3.3 Billion in reserve deposits. The coin dropped to US$0.8774 before returning to its dollar parity on Monday, as per CoinMarketCap data.

USDC reserves are composed of “strictly” cash and short-term Treasury securities, with 80% of the latter. “The challenge is that the full faith and credit of the underlying banking system, on which that relied, had nascent risk in it, that started manifesting itself,” Disparte stated.

Interconnectedness

Disparte believes that the banks and crypto industry have a symbiotic relationship and can both benefit from one another. Many financial institutions already use blockchain technology for payments and are interested in digital asset custodian solutions.

Disparte mentioned that more banks have joined the crypto sector than BNY Mellon, one of Circle’s main custodians. Circle also partners with BlackRock to manage the Circle Reserve Fund.

See Related article: Bitcoin Crypto-linked banks see a jump of over 9% after the U.S. takes action to protect their deposits

“It’s not [traditional finance] versus [decentralized finance and] it’s not crypto versus traditional banks. It’s actually a solid wall of shore up markets, shore up confidence, protecting consumers and ensuring, again, that the outcomes, in the long run, prove that this stress test could have been weathered by both traditional finance firms and companies like Circle,” Disparte said.

Disparte highlighted that Circle is willing to meet redemption requests, but new USDC is necessary to create a digital version of dollars for investors to keep them safe from economic risk.

“All of these risks start to accrue to urgency from legislators, policymakers and regulators to begin to protect consumers at the comprehensive whole of government level, as opposed to relying on this patchwork approach that we have in the United States for regulating this industry.”

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