Circle, the issuer of the USDC stablecoin, has declared that it will use corporate resources and “external capital if necessary” to make sure that the USDC is redeemable at a 1:1 ratio with the U.S. Dollar.
This statement comes in response to news of a $3.3 billion shortfall in cash reserves held by the collapsed Silicon Valley Bank.
In a blog post, Circle stated that it is legally required to “stand behind” its USDC stablecoin, which is currently collateralized 77% with US Treasury Bills and 23% with cash held at various institutions, of which SVB is only one.
CEO Jeremy Allaire also took to Twitter to confirm this statement, adding that the company will use corporate resources and external capital if necessary to ensure that USDC remains redeemable at a ratio of 1 for 1 with the US dollar.
Tl;Dr: While USDC can be used 24/7/365 on chain, issuance and redemption is constrained by the working hours of the U.S. banking system.
USDC liquidity operations will resume as normal when banks open on Monday morning in the United States. As a practical matter, our teams are…
— Jeremy Allaire – jda.eth on Farcaster (@jerallaire) March 11, 2023
Last week, USDC lost its peg to the US dollar following a bank run on Silicon Valley Bank and the disclosure that $3.3 billion in USDC’s cash reserves was held by the bank that the FDIC had taken over.
The stablecoin fell to its lowest point to $0.87, since 2019. However, the stablecoin has since regained some ground and is currently trading at $0.95.
Sharing an Update on USDC and Silicon Valley Bank. https://t.co/Ug3qpot8sJ
— Jeremy Allaire – jda.eth on Farcaster (@jerallaire) March 11, 2023
Circle’s collateralization ratio for USDC stablecoin
Circle restated their previous statement that USDC is fully collateralized with cash and US Treasuries, and emphasized that they have adequate liquidity to guarantee that the stablecoin can be redeemed at a 1:1 ratio with the US Dollar.
Specifically, 77% ($32.4 billion) of the stablecoin’s collateral is in U.S. Treasury Bills with a maturation period of three months or less, while the remaining 23% ($9.7 billion) is in cash held by multiple institutions, including Silicon Valley Bank.
To mitigate the risk associated with holding cash at banks, Circle deposited $5.4 billion with BNY Mellon. Additionally, Consumer Bank holds another $1 billion in USDC reserves.
Circle also maintains transaction and settlement accounts for USDC with Signature Bank.
Circle said that it had initiated transfers of the $3.3 billion funds to other banking partners, but these transfers had not yet been settled as of the close of business on Friday.
However, the company remains confident in the Federal Deposit Insurance Corporation (FDIC) management of the SVB situation and is ready to receive the funds once they have been transferred.
While the collapse of Silicon Valley Bank has raised concerns among crypto investors, Circle has emphasized that USDC has no exposure to the collapsed crypto-friendly bank Silvergate.
Additionally, the company has reassured investors that USDC liquidity operations will resume as usual when US banks open on Monday.
As of right now Circle’s teams are reportedly prepared to handle significant volume, given the stablecoin’s strong liquidity and reserve assets.
Circle has also expressed hope that the FDIC, as the receiver of Silicon Valley Bank, will seek a swift purchase and assumption of a franchise as strong as SVB’s to ensure all depositors are made whole.
The company’s commitment to supporting USDC is expected to reassure investors and help stabilize the stablecoin’s value.
