USDC Repegs as Treasury Steps in – Major Crisis Averted?

USDC regained its $1 peg after panic over its reserves rocked the crypto markets.

Cyberpunk man with mask in front of a USDC token.
  • Panic spread as many USDC holders sold their USDC below the peg.  
  • Tech and crypto firms were exposed to huge risks over the SVB collapse. 

Crypto averted a major crisis – the USDC stablecoin regained its peg to the US dollar after panic over its reserves rocked the markets. 

On Sunday, USDC issuer Circle revealed that it holds $3.3 billion of its reserves in the recently-bankrupt Silicon Valley Bank (SVB). That figure amounts to nearly 8% of its $40 billion reserves.

Sponsored

These revelations led the USDC to drop to an all-time low of $0.88, far below its intended peg of $1. USDC regained its peg on Monday after authorities revealed plans to limit the fallout from SVB’s collapse. 


Treasury Secretary Announced Plans to Protect Depositors

Treasury Secretary Janet Yellen said that the government would reimburse all SVB depositors. However, she rejected the notion that the government would bail out the bank. 

“Let me be clear that, during the financial crisis, there were investors and owners of systemic large banks that were bailed out,” said Yellen for CBS. “We are not going to do that again,” she added.

“But we are concerned about depositors, and we’re focused on trying to meet their needs,” Yellen added. That also means Circle, which is a major depositor of SVB bank. 

“100% of deposits from SVB are secure and will be available at banking open tomorrow,” said Jeremy Allaire, co-founder and CEO of Circle, after US regulators decided to intervene. 

SVB Crash Hits Crypto and Tech Hard

The collapse of the Silicon Valley Bank did not just impact USDC. Crypto and tech companies made up a majority of the bank’s clients. Circle CEO was among the many entrepreneurs that welcomed the intervention by US financial authorities. 

Sponsored

“We were heartened to see the US government and financial regulators take crucial steps to mitigate risks extending from the fractional banking system,” Allaire said. 

On Sunday, Angel investor Jason Calacanis called for US authorities to intervene on behalf of depositors. 

Silicon Valley Bank is a crypto-friendly bank that benefitted enormously from the 2021 tech boom. When Federal Reserve started raising interest rates, unprofitable crypto, and tech companies suffered. These made up most of SVB’s clients, so the bank ran into financial trouble. 

Panic Spreads – Holders Sell USDC at Loss

Despite USDC regaining its peg, the depegging was not without financial consequences. As panic spread, USDC holders cashed out in panic, contributing to selling pressure. 

On-chain data showed outflows from USDC as investors sold off their holdings. Many investors sold USDC below $1 dollar, likely registering a loss on their purchase. 

On Saturday, Circle burned $2.34 billion USDC due to stablecoin redemption while minting $366 million. Issuers like Circle send tokens to a burn address whenever users redeem them to ensure price stability. Similarly, Circle mints new tokens when tokens are in demand.  

According to Nansen, redemptions slowed down significantly on Sunday, as Circle burned 649.3 million USDC and minted $16.7 million. Despite major selling pressure, USDC bounced back to around $0.97 after Circle announced it would defend its peg. 

Withdrawal pressure slowed down further on Monday, as Circle burned $314 million while minting $407.8 million.

On the Flipside

  • US authorities did not have to bail out all depositors. The standard insurance amount is $250,000 per depositor. 
  • The fallout from SVC could have created ripple effects across crypto and tech. The crypto market cap rose 12.46% after the announcement. 

Why You Should Care 

USDC’s panic demonstrated how much crypto is still interconnected with the traditional financial system. 

Read about Circle’s stablecoin troubles:
Coinbase Staking Is Self-Custodial, Claims CEO: But What About USDC ‘Staking’?

Read about Binance’s troubles with BUSD:
Binance to Dump $1B BUSD for BTC, ETH, BNB… Here’s Why

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.