Crypto Shook as SVB Exposure $37 Billion to Stablecoins

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(Bloomberg) — The second-largest stablecoin in crypto fell from its intended $1 peg on Saturday, trading as low as 81.5 cents, hurt by issuer Circle Internet Financial Ltd.’s risk of a collapsed Silicon Valley bank. Was.

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The USD Coin, or USDC, is a staple of crypto markets and is believed to hold a constant $1 value, backed entirely by reserves of cash and short-dated Treasuries. But of that roughly $40 billion in reserves, $3.3 billion is held by the Silicon Valley bank, which has become one of the largest bank failures in recent history.

Regulators seized the bank on Friday and investors await more clarity on the return of deposits. In that vacuum, USDC fell below $1, trading at about 92 cents as of 9:02 a.m. ET in London on Saturday. Smaller stablecoins such as DAI and the PAX dollar also fell off their pegs, indicating widespread panic.

Concern has not yet spread to top stablecoin Tether, which stood at $1. Tether has faced scrutiny over its reserves before. The broader crypto markets are having a painful week and were on the back foot on Saturday: Bitcoin was oscillating between gains and losses, while smaller coins like Solana and Avalanche were in the red.

Circle chief strategy officer Dante Disparte described the collapse of the Silicon Valley bank as a “black swan failure” in the financial system, saying in a tweet that without a federal rescue plan there would be “huge implications for business, banking and entrepreneurs”. Will be

Data from CoinGecko shows that USDC has a circulating supply of approximately 41 billion tokens and a capitalization of approximately $37 billion. According to blockchain research firm Nansen, a net $2 billion USDC was redeemed in the past 24 hours. Data compiled by Bloomberg indicated USDC trading as low as 81.5 cents.

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Coinbase’s move

Stable coins such as USDC aim to have a set value against highly liquid assets such as the dollar. They come in various forms and some, such as Circle, are backed by reserves of cash and bonds. Investors often dump money into stablecoins as they move between crypto trades.

As the selloff in USDC worsened, -based crypto exchange Coinbase Global Inc said it would “temporarily pause” conversion of USDC to US dollars during the weekend, and would resume on Monday when banks opened.

The decline in USDC has had an impact on decentralized finance applications, which allow users to trade, borrow and lend coins and which rely heavily on trading pairs linked to stablecoins.

“Unless there is a concrete bailout plan later this week, I think the will turn ugly again next week,” Teong Hung, chief executive officer of crypto investment firm Satori Research, said of SVB’s failure.

crypto crisis

The crypto sector already had a long run, which has shaved $2 trillion off the value of digital assets since November 2021, triggering a series of explosions such as the TeraUSD stablecoin, the Three Arrows Capital hedge fund, and the FTX exchange. Has occurred.

The TerraUSD token — known as UST — tried to use a mix of algorithms and merchant incentives tied to a sister token, Luna, to maintain its value. The $60 billion wipeout of that system sparked global regulatory scrutiny of stablecoins.

“I think the is ‘panic pricing’ USDT around the fall of Luna, much like USDT is pricing in,” said Haohan Xu, CEO of institutional trading platform Epiphany. “This is driven by Circle’s exposure to SVB plus Coinbase discontinuing its USDC convert function.”

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trying to reassure

Crypto firms including Binance and Tether to Twitter on Friday to try to reassure their customers about any risks posed by the failed bank.

Changpeng Zhao, chief executive officer of the largest digital-asset exchange, Binance, tweeted that the firm is not at risk and that its funds are safe.

Paxos Trust Company, the issuer of PAX dollars, and crypto exchange Gemini said they have no relationship with the bank, according to statements on their official Twitter accounts. Tether’s CTO Paolo Ardoino said in a tweet that the largest stablecoin is not in contact with SVB.

In contrast, bankrupt crypto lender Blockfi has about $227 million in an account at the failed bank, according to a court filing.

– With assistance from David Pan.

(Updates prices in fourth paragraph. An earlier version of this story corrected the TERUSD acronym in the 12th to UST.)

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