On March 11, Circle announced that it plans to use company assets to cover the shortage of reserves that arose after the closure of Silicon Valley Bank (SVB). Circle is an issuer of USD-pegged stablecoins such as the USD Coin (USDC).
Circle has announced that USDC liquidity operations will resume ” normally when banks open on Monday morning in the United States.” This will make it possible to carry out USDC Redemption 1:1 with the US dollar ( $ ).
The announcement followed the loss of the $1 PEG by the stablecoin on March 11. The USDC dropped to as low as $0.87 before slowly returning to $0.96 at this time. The loss of the link was caused by the disclosure of Circle’s $3.3 billion in reserves at the Silicon Valley Bank.
As one of the largest lenders in the United States (US) and a major player in venture capital backed companies, Silicon Valley Bank was shut down by the California Department of Financial Protection and Innovation on March 10 this year. This caused concern about the future. To protect the insured deposits, the Federal Deposit Insurance Corporation was appointed as a trustee.
In the statement, Circle claimed that SVB is “a venerable and trusted partner of the American innovation economy”, which suffered from a “classic bank run, just as we saw during the financial crisis in 2008. Few traditional banks have enough liquidity to cope with such a flight.”Through a Twitter post, Jeremy Allaire shared an update on USDC and the Sillicon Valley Bank.
The classic bank run was caused, at least in part, by the significant losses suffered by the bank. This forced the bank to sell long-term assets in order to meet the demand for redemption. However, this, in turn, led to the emergence of a liquidity crisis in the short term. However, here they no longer came out on top.
