(Bloomberg) – Crypto’s second-biggest stablecoin rallied towards its intended $1 peg as issuer Circle Internet Financial Ltd. pledged to cover any shortfall of $3.3 billion in reserves held at the collapsed Silicon Valley Bank.
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USD Coin, a key component of crypto markets, surged as high as $1, trading at 98.2 cents in Tokyo as of 10:50 a.m. Sunday. The coin had previously scored less than 85 cents in a depeg that sent shivers through digital assets.
Circle reiterated that its stablecoin, also known as USDC, is fully backed by $42.1 billion in cash and US Treasuries. The company said $3.3 billion in outbound remittances at Silicon Valley Bank, which were initiated on Thursday, have yet to be processed, but expressed confidence in U.S. regulatory efforts to deal with the overall situation.
Circle said it is possible that “SVB may not return 100% and that each refund may take some time,” in which case the firm “as required by law under the Transfer of Money with Stored Value” will stand behind USDC and will use Company resources to cover any shortfalls, involving borrowed funds as appropriate.”
USDC’s volatility, said to be one of the safest assets in crypto at a constant $1 value, had spread to other stablecoins like Dai and Pax Dollar, but they were also edging closer to their pegs. Top stablecoin Tether, or USDT — which previously came under a close scrutiny of its reserves — said Friday that it has no exposure to Silicon Valley Bank and is stuck at $1 or more.
“There were two-way currents with some who just freaked out and wanted out of the USDC,” said Spencer Hallarn, derivatives trader at investment firm GSR. Some investors are moving to Tether “as a temporary hideaway,” while traders are “anticipating likely depreciation and value buying” on USDC, he said.
The story goes on
Race for deposits
On Friday, Silicon Valley Bank became the largest US lender to default in more than a decade. Deposits up to the Federal Deposit Insurance Corp. protected limit. of $250,000 should be available on Monday.
Regulators are scrambling to sell off assets and make some of customers’ uninsured deposits available as soon as possible – the numbers being released behind the scenes for a first payment range from 30% to 50% or more.
In previous tweets, Circle’s chief strategy officer Dante Disparte described the collapse of Silicon Valley Bank as a “black swan failure” in the US financial system, saying that without a government bailout plan, there will be “further implications for businesses, banks and entrepreneurs.” would. ”
Stablecoins are designed to hold a set value against another, highly liquid asset like the US dollar. Some, like Circle’s, are backed by cash reserves and bonds. Investors often park funds in stablecoins when switching between crypto trades or accessing blockchain-based financial services.
“Situation will improve”
USDC has about 41 billion tokens in circulation with a market value of about $40 billion, according to CoinGecko data. The billion-dollar token has been redeemed by traders since Friday.
U.S.-based crypto exchange Coinbase Global Inc. said it would “temporarily suspend” USDC to U.S. dollar conversions over the weekend and resume on Monday when banks open.
“It is likely that the USDC situation will improve,” wrote Noelle Acheson, author of the Crypto Is Macro Now newsletter. “Monday should bring news of a solution for SVB depositors, and Circle will be able to recover at least some funds in the short term, while banknotes become convertible for the rest.”
USDC’s fluctuations impacted decentralized finance applications — or DeFi — which allowed users to trade, borrow, and lend coins, and typically rely heavily on stablecoin trading pairs. On Saturday, members of the DeFi community that runs DAI proposed changes to the mechanism that helps keep the stablecoin pegged to $1 to reduce exposure to USDC.
The Challenges of Crypto
The crypto sector continues to suffer from an ongoing defeat that has depreciated $2 trillion in the value of digital assets since November 2021 and sparked a series of implosions such as the TerraUSD algorithmic stablecoin, the Three Arrows Capital hedge fund and the FTX exchange.
The TerraUSD token — known as UST — attempted to use a mix of algorithms and trader incentives involving a sister token, Luna, to hold its value. The $60 billion wipeout of this system increased regulatory scrutiny of stablecoins.
“The market panicked the USDC as it priced the USDT around the collapse of Luna,” said Haohan Xu, CEO of Apifiny, an institutional trading platform.
Broader digital asset markets round out a week of losses. Bitcoin is down about 9% over the period, the sharpest since a 23% weekly plunge in November following the collapse of Sam Bankman-Fried’s FTX platform.
For crypto market prices: CRYP; for top crypto news: TOP CRYPTO.
–Assisted by Suvashree Ghosh, Olga Kharif, David Pan and Shiyin Chen.
(Updates with USDC’s partial recovery from the first paragraph.)
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