Cryptocurrency traders have withdrawn more than $10 billion from the world’s second largest stablecoin, USDC, in less than three weeks even as concerns over the fallout from the Silicon Valley collapse have receded.
The redemptions could easily be seen from a reduction in USDC’s market capitalization, which dropped from $43 billion before the crisis to nearly $32.6 billion, making the net outflow $10.4 billion.
The massive outflows came even after Circle, the issuer of the second-largest stablecoin by market capitalization, regained access to the $3.3 billion locked up in Silicon Valley Bank.
Circle has restored USDC liquidity and resumed its regular operations, including bringing on new transaction banking partners. Moreover, the company now holds the cash portion of USDC reserves at BNY Mellon, except for limited funds held at other banking partners to support minting and redemption requests.
Circle said that 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.
Circle’s token lost its dollar peg earlier this month and slumped to an all-time low of $0.8 per coin after the issuer revealed it has nearly 9 percent of its $40-billion USDC reserves stuck at Silicon Valley Bank. However, the stablecoin then recovered most of its losses after Circle assured investors it would honor the peg despite exposure to failed bank.
The Boston-based firm said that in the event Silicon Valley Bank does not return 100% of deposits, it will cover any shortfall in the assets backing its stablecoin using corporate resources, involving external capital if necessary.
“However, it is also possible that SVB may not return 100% and that any return might take some time, as the FDIC issues IOUs (i.e., receivership certificates) and advanced dividends to deposit holders,” Circle said.
According to its latest breakdown, dated as of December 31, 2022, Circle held 100% of its reserves in cash and cash equivalents. Specifically, short-term United States Treasuries formed the majority of its cash equivalents category with $34 billion or a 75 percent share. The company also reported $10.5 billion in cash held at regulated financial institutions in the US.
