Home - Altcoins - Circle Commits to Covering USDC Shortfalls-Ensures Redemption at 1:1 with USD

James Carter

March 12, 2023

Circle Commits to Covering USDC Shortfalls-Ensures Redemption at 1:1 with USD

Circle, the company that produced USDC, has promised to make up for any shortfall in the stablecoin’s reserves if it doesn’t get all of the $3.3 billion that was stored at the now-defunct Silicon Valley Bank.

Circle said in a blog post on Saturday that the business is ready to make up for any shortfall in the USDC reserves caused by its exposure to SVB by using corporate resources, which could include getting money from outside the company.

Circle Commits to Covering USDC Shortfalls

The announcement comes after it was found that $3.3 billion of Circle’s $40 billion USDC reserves are in an account at Silicon Valley Bank, which has since gone out of business.

In the blog post, the company said that it had asked for wire transfers on Thursday, but they had not been done by the end of Friday. “We have reason to believe that transfers started before a bank went into receivership would have been processed normally under FDIC policy,” the business said.

In other words, Circle expects the FDIC, which took over SVB on Friday, to let transactions that were started before the agency took control settle as usual.

The company also said that USDC liquidity activities would go back to normal when banks in the United States open on Monday morning. “In reality, our teams are well-equipped to handle a lot of work, thanks to the strong liquidity and reserve assets we’ll talk about below.”

One of the most popular places for Silicon Valley innovation and growth businesses to get loans was Silicon Valley Bank. It went out of business on March 10 and was taken over by the Federal Deposit Insurance Corporation. (FDIC). On Friday, the federal agency took over the bank and formed the Deposit Insurance National Bank of Santa Clara, which now houses the insured deposits from SVB.

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USDC Continues to Remain Strong

The company that produced USDC also gave users their word that the stablecoin is still in good health. Circle reported that it keeps 77% of its reserves in Treasury Bills (Bills) with terms ranging from four weeks to 28 weeks. This was backed up by an audit by Deloitte, a global consulting and audit organization.

The largest asset manager in the world, BlackRock, is in charge of these T-Bills, which are kept at BNY Mellon. The business asserted that US Treasury Bills are the most liquid assets in the world and are direct debts of the US government.

The rest of the USDC’s reserves, at $9.7 billion, are in cash. Most of that amount, or $5.4 billion, is stored with BNY Mellon, which is one of the world’s largest and most stable financial organizations. Customers Bank has another $1 billion of the USDC’s reserves.

“USDC has no connection to Silvergate,” the company said. “Before the bank closed, we moved out our limited reserves to support transaction settlement with USDC.”

Hal Press, the founder of North Rock Digital, a platform for investing in digital assets, did some research and discovered that USDC holders should be able to sell their tokens for at least $0.93. “Overall, even if we assume that every bank where they keep cash goes bankrupt and returns 70% of the cash through asset sales in the worst case, USDC would still be worth 93c.”

Circle Commits to Covering USDC Shortfalls-Ensures Redemption at 1:1 with USD

On the other hand, the USDC, which hit an all-time low of about $0.8774 on Saturday as uncertainty grew, has since recovered some of its losses. The stablecoin is now worth more than $0.95, which represents an increase of more than 4% over the last day.

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