Circle Commits to Covering USDC Shortfalls – Ensures Redemption at 1:1 with USD

USDC issuer Circle has pledged to cover any shortfall in the stablecoin’s reserves if it does not receive the entirety of the $3.3 billion held at now-collapsed Silicon Valley Bank.

In a Saturday blog post, Circle said that the company is prepared to cover any shortfall in the USDC reserves that materialize from their exposure to SVB using corporate resources, which might even involve external capital.

The announcement comes after it was revealed that Circle has $3.3 billion of its $40 billion USDC reserves held in an account at the fallen lender Silicon Valley Bank. 

In the blog post, the company detailed it made wire transfer requests on Thursday, but they were not completed by the end of Friday. “We have reason to believe that under applicable FDIC policy, transfers initiated prior to a bank entering receivership would have otherwise been processed normally,” the company added. 

In other words, Circle expects the FDIC, which took over SVB on Friday, to allow transactions that were initiated before the agency’s takeover to settle in the ordinary course. 

The company further noted that USDC liquidity operations will resume as normal when banks open on Monday morning in the United States. “As a practical matter, our teams are well prepared to handle significant volume, built on the strong liquidity and reserve assets discussed below.”

Silicon Valley Bank, one of the most popular lenders to Silicon Valley tech and growth startups, failed on March 10, falling into the hands of the Federal Deposit Insurance Corporation (FDIC). On Friday, the federal agency took control of the bank and created the Deposit Insurance National Bank of Santa Clara, which now holds the insured deposits from SVB.

USDC Continues to Remain Strong

The USDC issuer also ensured users that the stablecoin is still in good shape. Citing an audit by Deloitte, a major insights and audit company, Circle said it holds 77% of its reserves in Treasury Bills (Bills) ranging from four weeks to 28 weeks.

These T-Bills are held at BNY Mellon and managed by BlackRock, the world’s largest asset manager. “US Treasury Bills are the most liquid assets in the world and are direct obligations of the U.S. government,” the company said. 

The remaining 23% ($9.7 billion) of USDC reserves is in cash. The bulk majority of that tally, or $5.4 billion is held at BNY Mellon, one of the largest and most stable financial institutions in the world. Another $1 billion of the USDC reserves is held with Customers Bank. 

“USDC has zero exposure to Silvergate; we had transferred out what were limited reserves to support transaction settlement with USDC prior to bank closure,” the company added. 

According to an analysis by Hal Press, founder of digital asset investment platform North Rock Digital, USDC holders are expected to be able to cash out their tokens for at least $0.93. “All in all even if we assume, every single bank they hold cash at goes bust and returns a worst case 70% of the cash via asset sales USDC would still be worth 93c.”

It's extremely hard to envision a scenario where you lose money buying USDC below that and most likely I think USDC ends up fully repegging. I am buying more at 88c as it is simply the best RR I have seen in a long time.

— Hal Press (@NorthRockLP) March 11, 2023

Meanwhile, USDC, which slid to an all-time low of around $0.8774 on Saturday amid rising uncertainty, has since trimmed some losses. The stablecoin is currently trading above $0.95, up by more than 4% over the past day.