USDC lost its peg against the dollar. Coinbase kept billions in Silicon Valley Bank
One of the leaders in the stablecoin sector has financial problems.
USD Coin (USDC), the second largest stablecoin with a market capitalization of $37 billion, broke its peg against the dollar 1:1 and thus fell to a record low on Saturday morning. After Circle, the US company behind USDC, revealed that some of its reserves were held at Silicon Valley Bank.
Coinbase suspends conversions between USDC and the dollar
Circle holds $3.3 billion of $40 billion in USDC reserves at the failed institution, Silicon Valley Bank. The fate of these funds is now highly uncertain as SVB has been shut down by the Federal Deposit Insurance Corporation (FDIC) and USDC has lost its dollar peg as a result.
So the knock-on effect of the collapse of Silicon Valley Bank has spread to the heart of cryptocurrency trading, causing chaos in the industry's second-largest stablecoin, USDC. The collapse of SVB triggered the biggest banking crisis since 2008, rocking global markets and claiming billions of dollars from companies and investors around the world.
Stablecoins are cryptocurrencies designed to maintain a fixed exchange rate with fiat currencies. The USDC price usually trades around $1, making Saturday's drop unprecedented. The previous all-time low was around $0.97. and was designated in 2018.
– Currently, Circle protects USDC from black swan syndrome in the US banking system. SVB is an extremely critical bank to the US economy, and its failure without a federal rescue plan will have broader implications for business, banking, entrepreneurs and the wider economy," Circle Strategy Director Dante Disparte tweeted late Friday night.
In response to the situation, Coinbase announced on Friday that the conversion between USDC and US dollars is temporarily suspended. The outage is due to the chaos and instability that affected the USDC in the aftermath of the Silicon Valley Bank collapse. The exchange plans to resume conversions on Monday, pending the resumption of normal banking hours.
USDC developments highlight the risk of holding funds in stablecoins as they rely on reserves to maintain their value. It also raises questions about the transparency of reserves supporting stablecoins and the need for urgent regulation of this cryptocurrency sector. While Circle has stated that it and the USDC are "continuing to operate as normal", investors and traders should remain cautious until more clarity is provided.