As soon as banks open in the US on Monday morning, Circle promises to be able to redeem the USDC at parity with the dollar. Let’s get an update on this announcement, as well as what will happen to the $3.3 billion frozen at Silicon Valley Bank (SVB).
Circle to redeem one USDC for one dollar on Monday
Last night, Circle officially announced the next steps for its stablecoin USDC. Thus, from Monday at the opening of the banks, the company will cover the repayments at the ratio 1:1 with the dollar:
USDC liquidity operations will resume as normal when banks open Monday morning in the US. In practice, our teams are well prepared to handle a large volume […]. As a regulated payment token, USDC will remain redeemable 1:1 with the US dollar. “
Although the USDC has not yet regained its peg to the dollar, the announcement has given investors a boost of confidence, at least stabilising the price of the stablecoin, if not returning it to its normal price. Depending on the data source, it is currently trading between $0.94 and $0.96:
Circle also went into detail about its reserves: 77% of the USDC’s capitalization is backed by US Treasury bills with a maturity of three months or less. The remaining 23% is cash held at various banking institutions, involving $5.4 billion at Bank of New York Mellon (BNY Mellon), as well as the famous $3.3 billion held by Silicon Valley Bank (SVB):
The remaining 23% ($9.7bn) is in cash. Last week, we took action to reduce bank risk and deposited $5.4bn with BNY Mellon, one of the largest and most stable financial institutions in the world, known for the strength of their balance sheet and as a custodian.
$3.3bn of USDC’s…
– Jeremy Allaire (@jerallaire) March 11, 2023
What will happen to the frozen cash at SVB?
For the $3.3 billion in cash tied up at Silicon Valley Bank, Circle is considering several possibilities.
The first scenario is a release of the funds on Monday. Indeed, the cash withdrawal was initiated before the California branch of the Federal Deposit Insurance Corporation (FDIC) ordered SVB and its assets into receivership. Under normal procedure, the transfer should therefore proceed normally.
However, there is a chance that the USD 3.3 billion will remain frozen. If this is the case, it is to be expected that the return of the assets will take time, given the administrative steps that this will entail. In the meantime, the FDIC will issue an IOU to Circle for repayment. It is also not impossible that the amount at stake may not be fully covered.
In the extreme case that the $3.3 billion is totally lost, Circle will cover the losses itself, even if it means having to raise funds:
“In such a case, Circle, as required by law under the stored value money transmission regulations, will stand behind the USDC and cover any shortfall using the company’s own resources, involving external capital if necessary. “
If USDC manages to fully recover from this ordeal, which, remember, originated in the banking sector, it will be a strong signal sent to the cryptocurrency ecosystem. So we’ll have to wait for the US banks to open on Monday before we can draw any conclusions.
