Traders withdraw $3 billion from crypto stablecoin USDC in three days

Traders have raised $3 billion net from crypto over the past three daysstablecoin USDC withdrawn as fallout from Silicon Valley Bank failure spreads to digital asset market

In a blog post late Wednesday, Circle, the operator of USDC, said it had cleared “substantially all” the backlog of mint and redemption requests related to USDC over the past few days. In total, $3.8 billion worth of tokens have been redeemed by investors since the weekend and $0.8 billion worth of new coins have been minted, it added.

The withdrawals, which account for almost 10 percent of the stablecoins’ total circulating supply, came after the US-based Circle said it had caught $3.3 billion on SVB. The bank was one of the main US banks used by crypto companies as a link between crypto and state money to hold Circle’s deposits.

Circle’s USD coin is one of the trading hubs of the digital asset markets. A stablecoin helps connect traditional and crypto markets, and traders use them like cash or a store of value between crypto trades. The USDC usually tracks the dollar’s value on a one-to-one basis, but traded at just 88 cents after Circle admitted its exposure to SVB.

Its price rallied and it regained its dollar peg after US authorities issued a bailout for SVB’s depositors, indirectly boosting confidence in crypto markets. Chief Executive Jeremy Allaire also said that Circle will “stand” behind the token and will use company resources, including external capital, to cover any shortfalls if necessary.

“US regulators’ decision to fully repay Silicon Valley Bank’s unsecured deposits allowed USDC price to rally,” said Cristiano Ventricelli, an analyst at rating agency Moody’s. “Otherwise, USDC could have suffered a run and been forced to liquidate its assets.”

Circle has rushed to move the rest of the cash deposits for its reserves to other banks as nervousness spread in the banking sector.

Of the $9.7 billion in cash, $3.3 billion was with SVB. Last week, Circle transferred $5.4 billion to US custodian BNY Mellon. Another billion dollars was held at Customers Bank, a small Pennsylvania-based bank. Customers shares are down a fifth over the past week on jitters in the US banking sector.

“I understand the flight from scale, it’s the idea that these banks are too big to fail and if something goes wrong, the US government will have their backs,” said Varun Paul, director of market infrastructure at the Blockchain-Platform Fireblocks, who previously spent 14 years at the Bank of England. “That may be true in the end, it’s just not an ideal situation.”

A person familiar with the matter said the company is “comfortable” to have transferred the majority of its cash reserves to BNY Mellon “for the foreseeable future.”

The collapse of SVB also followed the demise of two other crypto-friendly banks in Signature and Silvergate, dealing a blow to the industry’s already thin access to the mainstream banking system.

“It could have ended much worse, some prices have bounced back, but that just goes to show that the second largest stablecoin is not stable and that’s very ironic,” said Larisa Yarovaya, associate director of the Center for Digital Finance at Southampton Business School .