Of the two US banks which entered administration this week, you could be forgiven for assuming that the biggest negative effect on the crypto sector would have been inflicted by the announcement that Silvergate Bank, best known as a US dollar on-ramp for many major crypto exchanges, was entering voluntary liquidation.
But no, as we reported, it perhaps felt as though the crypto market had already priced in the almost expected collapse of Silvergate after it had closed down its fiat on-ramp service, Silvergate Exchange Network (SEN) earlier this month.
In contrast, it was the tech-startup friendly (and hence still vaguely crypto-linked, although to nowhere near the same extent as Silvergate) Silicon Valley Bank (SVB) that sent bigger ripples through crypto markets on news of it being shut down by regulators.
Circle’s USDC strayed a significant distance from its $1 peg to reach a low of $0.869 after revealing that $3.3 billion of the reserves backing the stablecoin were tied up at SVB. At the time of press it had regained most of that value, but was still under performing at a price of $0.953.
Circle has also disclosed that nearly 25% from its $40 billion reserves were held in cash. It is easy to calculate that the remaining five banks now hold 2/3 of the stablecoin's liquid reserves.
Reportedly, both Binance and Coinbase temporarily suspended USDC conversions to USD while traditional banks were closed over the weekend. And while Circle’s SVB exposure spurred a slump, USDT spiked to $1.06 at one point, as investors moved their stablecoin holdings away from USDC.
In many ways the collapse of Silvergate showed the ideal way that a bank perhaps should go under. With no financial assistance from US institutions the hit was taken by shareholders, as opposed to taxpayers or depositors.
Meanwhile SVB is covered by the FDIC, so Circle’s USDC reserves should be insured, which is just one of many reasons that it seems unlikely that the stablecoin will default.
In more positive news, The USDC Depeg led to a historic high trading volume in stablecoin swapping pool, Curve FINANCE, Exceeding $7 billion in the past 24 hours.
As always, we will continue to Observe and report back to you, our readers.