Circle’s USDC stablecoin regains parity

Regulators stepped in to prevent a broader run on the banking industry, resulting in Circle Internet Financial’s USDC, the second-largest stablecoin by market capitalisation, losing and regaining parity to the U.S. dollar. After the Federal Deposit Insurance Corporation (FDIC) said it has taken over Silicon Valley Bank (SVB), USDC was trading at US$0.9948. Circle held around US$3.3 billion in USDC reserve deposits at SVB. Cryptocurrencies also bounced back, with Bitcoin jumping almost 10% in early trading in Asia. The collapse of SVB followed the earlier collapse of another crypto-linked bank, Silvergate Capital.

FDIC data shows SVB had about US$209 billion in total assets at the end of last year, making it the biggest bank failure in the U.S. since the 2008 financial crisis that included the collapse of Lehman Brothers. Depositors will have access to all of their money starting Monday, March 13, and no losses associated with the resolution of SVB will be borne by the taxpayer. The FDIC also took control of Signature Bank, one of the biggest lenders in the crypto industry, due to banking industry risk. All depositors of this institution will be made whole, and no losses will be borne by the taxpayer.

Jeremy Allaire, Co-founder and CEO of Circle, said in a statement that they are heartened to see the U.S. government and financial regulators take crucial steps to mitigate risks extending from the banking system. Allaire said the US$3.3 billion in USDC reserve deposits held at Silicon Valley Bank “will be fully available when U.S. banks open tomorrow morning. No USDC cash reserves were held at Signature Bank. As a regulated payment token, USDC remains redeemable 1:1 with the U.S. Dollar.”

The U.S. bank failures could be seen as contagion from the crypto industry, but “the collapses of Silvergate and SVB didn’t appear to have direct links with cryptocurrency,” said Winston Hsiao, co-founder and chief revenue officer of Taipei-based fiat-crypto exchange XREX. New York-based Signature Bank was closed down on Sunday by its state chartering authority, with the FDIC appointed as receiver. At the end of last year, Signature Bank held total assets of around US$110.36 billion with US$88.59 billion in deposits, according to the FDIC. US President Joe Biden said he is “firmly committed” to holding those responsible for the Silicon Valley Bank and Signature Bank collapse “fully accountable.”