NEW YORK: The cryptocurrency known as USDC, which was believed to be a stable coin, experienced a sudden plunge in value after Circle, the company that created it, exposed that it held $3.3 billion in the now-defunct Silicon Valley Bank (SVB) and could no longer keep its peg to the US dollar.
Circle revealed late Friday that it has been unable to take out its reserves from SVB, whose unexpected collapse shook financial markets.
The Federal Deposit Insurance Corporation on Friday took over SVB, a major lender to the tech world, in the second-largest bank failure in US history.
SVB is expected to reopen on Monday under a new name, with billions in customer deposits now under FDIC control.
The FDIC guarantees deposits — but only up to $250,000 per client and per bank.
The agency said Friday it would provide certificates to customers with uninsured funds — those above the $250,000 limit — so that they would be the first to receive funds eventually recovered while the bank is in receivership.
But the liquidation of the bank’s assets can be a lengthy process, with no certainty of how much will be recovered.
The USD Coin, or USDC, was launched in 2018 as a “stablecoin,” meaning it was indexed to a currency backed by a central bank, in this case the US dollar.
It is listed as the second largest “stable” currency worldwide, based on its volume in circulation (around $40 billion), behind Tether.
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Stablecoins are supposed to be backed by equivalent reserves in immediately available assets, either cash or readily convertible financial securities.
Overnight Friday to Saturday, the USDC plunged to its lowest level ever, falling to 87 cents before bouncing back to around 94 cents.
Other stablecoins have also taken a hit.
The Dai, the fourth-largest stablecoin by volume in circulation, dropped to 95 cents, while the Frax (sixth largest) fell to 94 cents, its lowest ever.
The Coinbase cryptocurrency exchange platform said it was suspending USDC-dollar conversions until Monday, given its extremely high activity.
More than $25 billion in USDC had been exchanged on the Coinbase platform in 24 hours, a substantial volume compared to overall holdings.
Meantime, Binance, the largest cryptocurrency transaction site, said it was suspending conversions of USDC into BUSD — Binance USD, the platform’s own “stable” currency.
“Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the US economy and will follow guidance provided by state and Federal regulators,” Circle said in a statement.
