USDC Hits All-Time Low
The USDC, a stablecoin pegged to the US dollar, experienced a significant drop in value on Saturday, hitting an all-time low. This drop was due to the exposure of the company behind it, Circle, to the financial failures of the Silicon Valley Bank (SVB) group.
In a statement, Circle revealed that over $3.3 billion of its $40 billion USDC reserves were held at the downsized SVB. This news raised concerns about the stability of the USDC and whether it could maintain its dollar peg.
Circle quickly moved to reassure investors that they would not dishonor the dollar peg, despite the exposure by SVB. The company released a statement saying they would completely honor the dollar peg and that 1 USDC would be worth 1 USD.
Circle also assured users that even if the bank returns all USDC deposits under receivership, it must cover shortfalls using available resources and external capital if necessary. After the drop on Saturday, the USDC recovered some of its losses, rising from a low of $0.88 to $0.97 during the mid-trading session.
Circle representatives announced that the USDC liquidity operations would resume on Monday as banks reopen operations in the US. However, the pitfalls of the SVB’s financial failures are already evident, with Coinbase denying access to exchanging the token for fiat, citing heightened activities.
Given the current state, investment analysts warn of the serious implications for the US dollar and stablecoins. For example, Joseph Edwards, an analyst at Enigma securities, stated that no matter how Circle deals with the situation, it undermines confidence in stablecoins.
The implications in the short term will be dramatic, especially if systems record that 1 USDC is not worth 1 USD anymore. However, as Circle waits for regulatory guidance on the fate of depositors, they are keeping things running and planning out many different save scenarios.
Binance Reassures Investors
As the industry evaluates the risks posed by the Silicon Valley Bank’s financial failures, some players have already announced that they have no exposure to the bank. For example, Binance, one of the world’s largest cryptocurrency exchanges, stated that it has no exposure to the bank and that investors are safe.
Other companies are following suit, including Gemini and Paxos, as the industry tries to reassure investors that stablecoins remain a safe option for investment. Stablecoins, including the USDC, is designed to provide a haven for investors in the crypto industry, given the impact that downfalls and hacks can have.
Reuters notes that stablecoins are designed to maintain a stable exchange rate with fiat currencies backed by central banks. The value of the USDC has always held near the $1 mark, which is why Saturday’s events were surprising.