LONDON, March 11 (Reuters) – Stablecoin USD Coin (USDC) lost its peg to the dollar and slumped to an all-time low on Saturday before recouping most of its losses after Circle, the company behind, assured investors investors that it would honor the anchor despite exposure to the failed Silicon Valley Bank.
Circle said in a tweet on Friday that it held $3.3 billion of its $40 billion in USDC reserves at Silicon Valley Bank. On Saturday, the cryptocurrency firm said in a blog post that USDC liquidity operations will resume as normal when banks open Monday morning in the United States.
“As a regulated payment token, USDC will remain redeemable 1-to-1 with the US dollar,” the company said in a blog post.
The cryptocurrency company said that in case the bank does not return 100% of deposits, it will cover any shortfall using company resources, involving external capital if necessary.
The coin, which broke its 1:1 dollar peg and fell to $0.88 shortly after 0800 GMT (3am EST) on Saturday, according to market tracker CoinGecko, rallied to trade around 0. $.97 at 2100 GMT.
Latest updates
See 2 more stories
Silicon Valley Bank collapsed on Friday in the biggest U.S. bank failure since the 2008 financial crisis, rocking global markets and locking up billions of dollars belonging to businesses and investors.
Circle said in a tweet on Friday that the company and USDC “continue to operate as normal” while the company awaits clarification on what will happen to depositors at Silicon Valley Bank.
Meanwhile, US crypto exchange Coinbase said in a tweet that it is not allowing the exchange of USDC for US dollars over the weekend while banks are closed, citing “activity heightened,” as he plans to resume trading on Monday.
Joseph Edwards, investment adviser at Enigma Securities, said the situation was “extremely serious” for USDC.
“No matter how strong Circle’s operations are, this type of depeg on a stablecoin tends to fundamentally undermine confidence in it,” Edwards said.
“The short-term implications here are dramatic and unknowable, especially once systems start to need to adjust to the reality that 1 USDC is not trading at 1 USD at this time.”
CONSTANT EXCHANGE RATE
Stablecoins are cryptocurrencies designed to maintain a constant exchange rate with “fiat” currencies – those backed by a central government rather than a physical commodity like gold – for example via a peg to the US dollar of 1: 1.
Used in cryptocurrency trading, they have risen in value in recent years. USDC is the second largest stablecoin with a market capitalization of $37 billion. The largest, Tether, has a market capitalization of $72 billion, according to CoinGecko.
USDC price is generally holding close to $1, making Saturday’s decline unprecedented. According to data from CoinGecko, its previous all-time low was around $0.97 in 2018, although in 2022 it fell to just below $0.99 when the cryptocurrency markets rocked. by the collapse of crypto hedge fund Three Arrows Capital.
Traders have been on their toes this week amid signs of contagion in the financial sector and beyond issues at Silicon Valley Bank and crypto-focused Silvergate (SI.N), which disclosed this week its intention to terminate its operations and voluntarily liquidate itself.
Boston-based Circle said last week that it had transferred a “small percentage” of USDC reserve deposits held at Silvergate to its other banking partners.
The chief executive of cryptocurrency exchange Binance said in a tweet on Friday that he had no exposure to Silicon Valley Bank, as did Paolo Ardoino, chief technology officer of Tether.
Stablecoin issuer Paxos and crypto exchange Gemini also tweeted that they have no relationship with the bank.
Reporting by Elizabeth Howcroft in London and Rishabh Jaiswal in Bangalore; Editing by William Mallard, David Holmes and Paul Simao
Our standards: The Thomson Reuters Trust Principles.