Note that USDC’s depreciation over the weekend caused panic among crypto investors, who had already experienced a near-impairment of the Terra ecosystem’s UST “stabelcoin”. In particular, holders of large stocks of other staples have stepped up.

To illustrate this, USDT withdrawals of the equivalent of more than a billion dollars will do. There have been eight such transactions in the last year, with half of them occurring in March 2023. As Santiment experts point out, the situation is due to concerns from large investors who have withdrawn at least a billion dollars from exchanges due to the collapse of major banks in the US and the crypto world going on.

That said, not everyone has been so lucky. Previously, we described the actions of a trader who exchanged $2 million in USDC for 5 cents in USDT due to haste. He used a decentralized exchange for this, although the latter somehow showed the investor the actual exchange rate. Read more about the situation in a separate article.

What is happening to the USDC stablcoin?

Silicon Valley Bank had about $3.3 billion in accounts held by the issuer of the stablocoin. According to CryptoPotato sources, Allaire assured that the company had its own internal reserves in place to prepare for the banks opening on Monday. Here is his rejoinder to that effect.

We moved all our assets into Bank of New York Melon and also held them in Circle Reserve Fund, which is a short-term bond managed by Blackrock.

Amusingly enough, the reason Silicon Valley Bank collapsed was that the bank invested its clients' money in long-term government bonds, among other things. The yields before the key interest rate hike were attractive, but as the rate of interest rose, they depreciated. Well, when clients started trying to withdraw their money, they caused a liquidity crisis - i.e. a shortage of funds, and then the bank became insolvent because it took a loss on its own investment instruments in an attempt to find some money.

Over the weekend, Circle representatives confirmed that money had been blocked in Silicon Valley Bank’s accounts, leading to a massive sell-off of USDC. This caused the value of the coin to deviate from parity with the US dollar, but within two days the USDC has returned to its normal value.

Fortunately for Circle, on Sunday the US Federal Reserve stepped in and provided access to all deposits of the affected Silicon Valley Bank customers. In doing so, Allaire said that everything that happened was an ironic reminder of an important thing. Here’s his quote from Cointelegraph.

There has been a lot of talk about protecting the banking system from cryptocurrencies, but here we have a situation where we are trying to protect the digital dollar from the banking system.

Indeed. Stablecoin issuers have experienced a lot of criticism campaigns before because of the security of their coins. Still, ideally users wanted the stabelcoin to be fully collateralised with dollars in company bank accounts, rather than various financial instruments. However, as it turns out now, the reliability of banks was clearly overestimated, well cryptocurrencies are not as "bad" as officials and the same bankers have claimed.

Shortly after the FTX collapse in November 2022, federal regulators issued various warnings to banks about the risks involved in servicing crypto companies. Former Congressman and Signature Bank board member Barney Frank said on Monday that the bank’s arrest by regulators was likely a deliberate attack on the crypto market without any objective reason.

However, with regard to Silicon Valley Bank, Allaire believes that its closure and subsequent rescue of depositors was the “right decision” on the part of the government. A complete collapse of the bank would have created “significant risks” to the financial system – fortunately, the worst consequences were avoided.

It is worth noting that USDC’s capitalisation has slumped significantly over the last week. On March 10 it was at $43.8bn, whereas now it is at $38.3bn. Accordingly, holders of 5.5 billion USDC withdrew them through Circle in exchange for dollars, well it burned a corresponding number of tokens.


It looks like Circle's USDC will continue to operate normally in the near future. Certainly, the reputation of the stablcoin has been hit, but in this case the culprit was the bank's employees, whose investments and poor risk management led to insolvency. Therefore, USDC's capitalisation is likely to recover over the coming months.