USDC stablecoin breaks dollar peg after $3.3 billion Silicon Valley bank risk disclosure

People stand at the entrance to the Silicon Valley Bank in Santa Clara.

Reuters

Stablecoin USD Coin (USDC) lost its peg to the dollar and fell to an all-time low on Saturday after Circle, the US firm behind the coin, revealed that some of the reserves backing it are being held at Silicon Valley Bank.

Circle has $3.3 billion of its $40 billion in U.S. dollar reserves at bankrupt lender Silicon Valley Bank, the company said. tweet Friday.

According to market tracker CoinGecko, the coin broke its 1:1 dollar peg and dropped to $0.88 early Saturday. It recovered slightly, trading around $0.90.

The Silicon Valley Bank collapsed on Friday in the biggest collapse of a US bank since the 2008 financial crisis, which rocked global markets and wiped out billions of dollars held by companies and investors.

Krug said in tweet On Friday, he and USDC “continue to operate as usual” while the firm waits for clarity on what will happen to Silicon Valley Bank depositors.

Circle did not immediately respond to a request for comment on the dollar peg sent after US business hours.

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, through a 1:1 pegging to the US dollar.

Used in cryptocurrency trading, they have risen in price in recent years. USDC is the second largest stablecoin with a market capitalization of $37 billion. The largest of them, Tether, has a market capitalization of $72 billion, according to CoinGecko.

The USDC price is usually close to $1, which makes Saturday’s drop unprecedented. Its previous all-time low was around $0.97 in 2018, according to data from CoinGecko, although it fell just below $0.99 in 2022 when the cryptocurrency markets were rocked by the collapse of cryptocurrency hedge fund Three Arrows Capital.

This week, traders have been on the lookout for signs of contagion in and out of the financial sector due to issues with Silicon Valley Bank and crypto-focused Silvergate, which this week revealed plans to wind down operations and voluntarily liquidate.

Boston-based Circle said last week it had transferred a “small percentage” of its 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 connection to Silicon Valley Bank, as did Tether CEO Paolo Ardoino.

Stablecoin issuer Paxos and cryptocurrency exchange Gemini also tweeted that they have no relationship with the bank.

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Post-stablecoin USDC is breaking its peg to the dollar after the $3.3 billion Silicon Valley bank risk was first reported on KION546.

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