The crypto community was in temporal jeopardy over the weekend due to reports that some crypto-friendly banks in the United States packed up and one of the most prominent stablecoins in the Crypto space, $USDC lost its peg to the US dollar and dropped as low as $0.8.
Circle announced that it had redeemed 2.9 billion USDC and minted 700 million USDC on March 13, that was down from an earlier estimate of $4 billion to $12 billion without a U.S. government’s intervention for banks. Circle says it will continue to add new transaction banking partners with 24/7/365 capabilities.
Although the Circle-issued stablecoin regained its peg on Monday, the discussion on how stablecoin de-pegging has become a recurrent theme in the crypto space still lingers.
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For the uninitiated, stablecoins are a type of cryptocurrency designed to have a stable value relative to a specific asset or a basket of assets, typically a fiat currency such as the US dollar, Nigerian naira, euro or Japanese yen.
They are designed to offer a “stable” store of value and medium of exchange compared with more traditional cryptocurrencies like Bitcoin, which can be highly volatile. Fiat money, cryptocurrencies, and commodities like gold and silver are examples of assets used to collateralise or “back” stablecoins. The leading stablecoins in the space include the Tether-issued $USDT, Circle-issued $USDC, Binance’s $BUSD, $DAI and the defunct Terra’s $UST.
The only stablecoin that hasn’t encountered problems or depegged in the last ten months is Tether $USDT. All others have, at one point, put traders in a state of panic by losing their peg to $1. As a matter of fact, Terra’s $UST, which is supposed to be a stablecoin, currently trades at $0.02, a 97% decrease from the $1 mark.
Update from Circle
A stable U.S. banking system where deposits are safe and accessible is essential to the global financial system and to the operations of every fiat-backed stablecoin.
That was recognized by the U.S. government’s actions on Sunday, March 12, when the U.S. Treasury, Federal Reserve and the FDIC together stepped in to ensure that ordinary depositors were not harmed by the failures of Silicon Valley Bank and Signature Bank.
Since the failures of Signature Bank and Silvergate Bank, our core transaction banking partners, our teams have been working around the clock to restore USDC liquidity operations, including bringing on new transaction banking partners. We began processing minting and redemption requests on Monday morning, March 13, when the U.S. banking system re-opened, and are currently working through the backlog. We have more to do here, including adding new transaction banking partners with 24/7/365 capability, and we will keep our community posted on our progress.
On March 13, Circle has redeemed $2.9B USDC and minted $0.7B USDC. Moreover, as part of our ongoing initiatives to strengthen the USDC reserve, we now hold the cash portion of the reserve at BNY Mellon, except for limited funds held at transaction banking partners in support of USDC minting and redemption.
The majority of the reserve is invested in the Circle Reserve Fund, managed by BlackRock and custodied at BNYM, which is principally comprised of short dated U.S. Treasuries.