Following the classic bank run experienced by Silicon Valley Bank last week, Circle has assured users that USD Coin (USDC) stablecoin will remain redeemable 1 for 1 with the US Dollar. This assurance was made by Circle through its blog.
According to Circle, Silicon Valley Bank “suffered significant losses which led to a situation where they were forced to sell long-duration assets to meet redemption demand”.
The impact on the USDC reserve
On the impact Silicon Valley Bank collapse has on USDC reserve, Circle says USDC remains 100% collateralized with a combination of cash and US Treasuries.
Specifically, according to Circle, 77% ($32.4 billion) of USDC is collateralized with US treasury bills, while 23% ($9.7 billion) is collateralized with cash held at a variety of institutions, including Silicon Valley Bank. $3.3 billion of the cash reserves are with Silicon Valley Bank.
On the US treasury bills, they are liquid assets and are direct obligations of the U.S. government.
BNY Mellon holds the USDC reserves while BlackRock takes care of the active liquidity and asset management. The Circle Reserve Fund is hosted on Blackrock’s USDXX ticker.
According to Circle, it deposited $5.4bn with BNY Mellon 2 weeks ago. The reason is to reduce bank risk.
Apart from Silicon Valley, Circle says it also maintains banking service relationships with Customer Bank and Signature Bank. Circle has $1bn of the USDC reserves held with Customers Bank. For USDC transactions and settlements, Circle uses Signature Bank.
Meanwhile, according to Circle, USDC has zero exposure to Silvergate. “We had transferred out what were limited reserves to support transaction settlement with USDC prior to bank closure”, said Circle.
What Circle expects with FDIC having taken control of Silicon Valley Bank
The Federal Deposit Insurance Corporation (FDIC) stepped in on Friday 10 March to administer Silicon Valley Bank as a receiver. Circle hopes that the FDIC would find “a solution that protects customers’ assets 100%”.
According to Circle, it made some transfers to Silicon Valley Bank on Thursday before the bank failed. Circle expects that the FDIC would allow the transfers to be processed normally since the transfers were made before the failed bank was taken over by the FDIC. Circle hopes these transfers will be completed on Monday 13 March 2023.
Also, Circle hopes that the FDIC as receiver “will seek a rapid purchase and assumption of a franchise as strong as [Silicon Valley Bank’s] to ensure all depositors are made whole”. And should Silicon Valley Bank be unable to return 100% of the customer funds and should any return take some time, Circle expects that the FDIC would issue IOUs (i.e., receivership certificates) and advanced dividends to deposit holders.
In a joint statement by the Treasury, Federal Reserve, and FDIC on Silicon Valley Bank and Signature Signature Bank Collapse on 12 March, it was announced that both Silicon Valley Bank and Signature Bank depositors will be made whole.