Traders Dump USDC After Silicon Valley Bank and Silvergate Fail
USDC issuer Circle said it banked with failed SVB and Silvergate.
By: Owen Fernau •DeFi News
Traders are moving out of USDC, crypto’s second largest stablecoin after Circle said it banked with failed Silicon Valley Bank (SVB) and Silvergate Bank. Circle is the issuer of USDC.
USDC market capitalization dropped to $42.3B on Friday from $43.6B a week earlier, according to data from Coingecko. The stablecoin’s price, which is supposed to be pegged to $1, slid to as low as $0.9918.
USDC Market Capitalization. Source: Coingecko
Circle listed SVG and Silvergate as two of its seven banking partners in a March 2 report.
“While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally,” Circle said in a tweet.
USDC fears have rippled into DeFi, as reflected in shifts within Curve Finance’s stablecoins pool. 3Pool, as it’s called, contains USDC, DAI, and USDT.
Traders have sold USDC and DAI for USDT, fearing that Circle held a significant amount of the reserves backing USDC in SVB. The pool, which consists of $494M of the three stablecoins, is now imbalanced and consists of 47% DAI, 46% USDC, and 6% USDT, as of late afternoon New York time on Mar. 10.
Curve’s 3Pool Reserves.
In addition to USDT, traders are also piling into the LUSD stablecoin, which is issued by Liquity and is entirely backed by ETH. The heightened demand for the token has pushed it to $1.03 despite its design which aims to keep LUSD at par with one dollar.
LUSD price. Source: Coingecko
At a $247M market capitalization, LUSD is now crypto’s twelve largest stablecoin.
The California Department of Financial Protection and Innovation, a regulating body, ordered the shutdown of Silicon Valley Bank (SVB), according to a press release from the Federal Deposit Insurance Corporation (FDIC). All insured depositors will have full access to their insured deposits no later than Monday morning, the statement said.
SVB was the United States’ 18th largest bank, with $212B in assets, as of Sept. 30 2022 and according to the National Information Center, a federal organization which provides information on banks and other institutions.
Silvergate Bank, a major banker for crypto companies, went belly-up on Mar. 8.
A chart from the FDIC’s quarterly profile of banks, which was released on Feb. 28, showed a huge increase in unrealized losses for the banking industry. The unrealized losses were due to high interest market interest rates, according to the FDIC (bond prices move inversely to interest rates).
US banks unrealized gains and losses. Source: FDIC
More broadly, crypto markets have stabilized somewhat after a case brought by the New York Attorney General calling ETH a security, coincided with a drop of over 6% for the asset in the span of three hours on Mar. 9. ETH and BTC were down less than 1% Friday.
ETH is down roughly 9% on the week to $1,424 and BTC is down roughly 10%, according to The Defiant Terminal. BNB, crypto’s third largest asset, has dropped nearly 5% as of late afternoon New York time on Mar. 10.
It’s not only digital assets struggling however — the S&P 500, the United States most commonly cited stock index, is also down 4.4% on the week, dragged down by bank stocks.
ETH, BTC, BNB, SPY prices drop. Source: The Defiant Terminal