Crypto group Circle admits $3.3 billion exposure to failed Silicon Valley Bank

Circle, the operator of one of the world’s largest stablecoins, said $3.3 billion of its reserves are trapped in Silicon Valley Bank, triggering a fall in the value of its token as the crypto market reeled from the collapse of two U.S. banks this week device.

Circle’s overnight announcement on Friday caused the company’s USDC crypto token to lose its peg to the dollar.

The US exchange Coinbase announced that it is temporarily suspending the conversion between USDC and the US dollar. Rival exchange Binance also said it would offer automatic USDC to BUSD conversion, a stablecoinwhich carries the Binance branding.

Circle called for an urgent federal bailout plan for SVB.

The SVB collapse, the second-largest bank collapse in U.S. history, is beginning to spread to customers in another blow to the crypto market, which is still recovering from a crisis of confidence last year that hit many of its biggest names has.

Earlier this week, Silvergate, a US bank that has been courting crypto customers, said it would shut down operations following a rush for deposits.

Stablecoins play a key role in connecting traditional and crypto markets, and traders use them like cash or crypto-native dollars to transact. Most track the value of a major currency like the dollar one-to-one. Stablecoin operators typically earn interest on the traditional assets underlying their tokens, with higher supply in circulation driving revenue.

Circle’s USD coin is the second-largest stablecoin in the crypto market, with $42 billion in circulation, according to company data.

The company said it holds a quarter of USDC’s cash reserves with six banking partners, one of which was SVB. The majority of its $40 billion in reserves are held in short-dated US Treasuries and other US banks.

“Not only the cryptocurrencies themselves are under pressure: now the banks that support the industry themselves are also failing. And stablecoins like USDC are the route in and out of crypto for many investors,” said Charley Cooper, a former chief of staff at commodity futures Trading Commission, the US regulator.

“The threat even to those backed by the reserve [stablecoin] The model has challenged the viability of the interface between crypto and traditional finance,” he said.

Dante Disparte, Circle’s chief strategy officer, warned Saturday that the company will protect its stablecoin from a “black swan failure of the US banking system.”

“SVB is a vital bank in the US economy and its failure – without a federal bailout plan – will have wider implications for businesses, banks and entrepreneurs,” he tweeted.

Circle said it will continue normal operations while awaiting clarity from US regulators on how SVB’s failure will affect its depositors, Circle and USDC. It did not immediately respond to a request for comment.

Since the collapse of SVB, the USDC token has traded for just 88 cents against the dollar, according to industry price tracking website CoinMarketCap.

Circle held cash in several US-regulated financial institutions, including Silvergate and SVB, it announced.