Circle Unable to Withdraw $3.3 Billion from SVB, Causing USDC Sell-Off
Circle is a Boston-based fintech company that provides payments and investment services using blockchain technology. USDC is a stablecoin issued by Circle and Coinbase, pegged to the value of the US dollar at a 1:1 ratio. It is one of the fastest-growing stablecoins, with a market capitalization of over $10 billion as of March 2022.
SVB is a California-based bank that provides banking services to technology and life science companies. It is one of the largest banks in the US and has been a key partner for Circle in managing its reserves. However, SVB recently announced that it would shut down its operations due to regulatory issues, leading to concerns about the fate of Circle’s reserves held with the bank.
On March 9, Circle initiated a wire transfer to withdraw its funds from SVB. However, two days later, Circle announced that the transfer was not fully processed, leaving $3.3 billion of USDC reserves with SVB. The news caused a sell-off of USDC, with the stablecoin’s value dropping below its $1 peg. As of March 2022, USDC was trading at $0.8774, a more than 10% drop from its value before the news.
The situation has raised concerns about the stability of USDC and the broader implications of SVB’s failure. In a statement, Disparte warned that SVB’s failure could have broader implications for the US economy, particularly for businesses, banking, and entrepreneurs. He called for a federal rescue plan to prevent further damage to the economy.
The situation also highlights the risks of using stablecoins, which are digital currencies designed to maintain a stable value. Stablecoins are often used in cryptocurrency trading and as a means of payment, but they are not immune to market fluctuations and other risks. The lack of regulation and oversight in the stablecoin market has also raised concerns about their stability and reliability.
In response to the situation, Circle has assured its users that their USDC holdings are fully backed by reserves held in other banks. The company has also said that it is working to resolve the issue with SVB and is exploring alternative banking partners. However, the incident has raised questions about the risks of using stablecoins and the need for greater oversight and regulation in the market.
This article was originally reported on Blockchain News.