USDC, a popular stablecoin, has nearly regained parity with the US dollar after rising above $0.99 on March 12, 2023, at 7:20 p.m. Eastern Time. The sudden rise back to the $0.99 range followed the U.S. Federal Reserve’s announcement that it was initiating a bailout for depositors of California’s Silicon Valley Bank (SVB) and New York’s Signature Bank. After the announcement, Circle CEO Jeremy Allaire revealed that the company would rely on BNY Mellon to settle the process of minting and redemption.
The following day, March 13, the stablecoin remained trading at $0.998 per unit. Three minutes after the stablecoin returned to the $0.99 region, Allaire tweeted that USDC operations would resume on Monday. The U.S. Federal Reserve had established a backstop entity called the Bank Term Funding Program (BTFP) to assist banks facing liquidity challenges. The central bank had also stated that all depositors of Silicon Valley Bank (SVB) and Signature Bank would be fully compensated. This meant that Circle Financial would not lose funds because the bailout would make depositors whole, but Circle did lose a banking partner with Signature being shut down by New York regulators.
“We were heartened to see the U.S. government and financial regulators take crucial steps to mitigate risks extending from the fractional banking system,” Allaire said in a statement. “All deposits from SVB are 100% secure and will be available at banking open tomorrow.” Allaire added that 100% of USDC reserves were safe and secure, and they would complete their transfer for the remaining SVB cash to BNY Mellon. Liquidity operations for USDC would resume as banking opens tomorrow morning.
Allaire also commented on the Signature Bank issue, acknowledging that Circle had previously used the company’s Signet service, which facilitated settlements between USDC and USD. Signature Bank’s Signet was a similar service to Silvergate Bank’s now-defunct SEN network. “With the closure of Signature Bank announced tonight, we will not be able to process minting and redemption through Signet. We will be relying on settlements through BNY Mellon,” Allaire said in his Twitter statement.
In addition to USDC, several other top stablecoins, including DAI, USDD, USDP, GUSD, LUSD, and FRAX, also returned to the $0.99 range after depegging over the past weekend. As of March 12, the stablecoin economy was valued at $135.85 billion, following the market confidence bolstering stablecoin values. Moreover, stablecoins account for most of the global trade volume at the moment, with $71.78 billion of the day’s $88.82 billion in crypto swaps.
Overall, the news of the US Federal Reserve’s bailout helped stabilize the market and mitigate risks. While the closure of Signature Bank was unfortunate for Circle, the reliance on BNY Mellon for minting and redemption settlements is a viable alternative. Stablecoins remain a critical component of the cryptocurrency ecosystem, providing investors with the stability and security they need to confidently enter and exit the market.