How much cash does Circle have in Silicon Valley Bank?

This article is from Coindesk, by: Krisztian Sandor

Odaily Planet Daily Translator | Moni

Circle is the issuer of the second-largest dollar stablecoin USDC, with a circulating supply of $43 billion, reportedly fully backed by government bonds and cash-like assets.

Currently, the approved blockchains for USDC include Algorand, Avalanche, Ethereum, Flow, Hedera, Solana, Stellar, and TRON, and are used by the company for issuing and redeeming USDC, allowing but not issuing tokens to exist on the Hedera and Solana blockchains that are currently not issued to USDC holders.

According to a reserve report released by Circle in January (as shown in the image below), it currently holds about $9.88 billion in cash reserves, held at regulated financial institutions in the U.S., including: Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank, a division of Flagstar Bank, N.A., Signature Bank, Silicon Valley Bank, and Silvergate Bank—yes, this includes the recently announced failed Silicon Valley Bank.

In addition, Circle has also deposited part of its USDC reserves in a dedicated fund managed by BlackRock. According to data disclosed on Circle's official website on March 11, cash deposits in USDC reserves amount to $11.1 billion.

Last week, Circle announced that it had severed ties with Silvergate Bank, a cryptocurrency-friendly bank that ceased operations, and stated that it would "voluntarily liquidate" its assets earlier this week. However, just as the Silvergate Bank turmoil was not yet settled, more "bad news" came from Silicon Valley Bank, which was closed by California regulators due to insolvency, and the Federal Deposit Insurance Corporation (FDIC) subsequently issued a statement confirming it had become the bankruptcy trustee for Silicon Valley Bank.

1. Will Circle's $3.3 billion exposure at Silicon Valley Bank trigger a chain reaction?

On March 11, Circle confirmed in a social media post that the company had initiated a wire transfer request to move balances from Silicon Valley Bank on Thursday, but it has not yet been processed, with approximately $3.3 billion still remaining at Silicon Valley Bank out of its roughly $40 billion USDC reserves. Like other clients and depositors relying on Silicon Valley Bank for banking services, Circle is requesting that Silicon Valley Bank maintain continuity in the U.S. economy and will follow the guidance provided by state and federal regulators.

Following this announcement, the dollar peg of USDC was further exacerbated. In fact, before Circle disclosed that $3.3 billion was trapped at Silicon Valley Bank, USDC had already experienced a temporary de-pegging, dropping to the $0.98 range, and after the announcement, Coingecko data showed USDC quickly fell to $0.938, with a 24-hour decline of over 6%, and its market capitalization dropped below $40 billion—clearly, the market reaction indicated concerns about Circle's reserve situation.

The temporary de-pegging forced Circle to choose to burn USDC to maintain price stability. According to data disclosed by blockchain analytics firm Nansen, Circle has burned $2.34 billion worth of USDC in the past 24 hours, with 70% (approximately $1.65 billion) burned in the past 8 hours.

However, the de-pegging of USDC triggered a wave of cryptocurrency exchanges, as many users rushed to Coinbase to convert USDC back to dollars, fearing the risks of holding USDC, forcing Coinbase to announce that it would pause conversions between USDC and dollars during the weekend bank closure. During busy exchange activities, conversions rely on dollar transfers cleared during normal banking hours, and Coinbase stated it plans to resume conversion services when banks reopen on Monday.

In fact, since the closure of Silicon Valley Bank, Circle's USDC has experienced net redemptions of up to $1 billion, as investors redeem dollars, these tokens are withdrawn from circulation. Although Circle minted new tokens to increase circulation, the number was significantly lower than the number of tokens burned.

Undoubtedly, the bankruptcy of Silicon Valley Bank has had a significant impact on USDC and even the broader cryptocurrency market.

2. Will Circle become the next victim due to the collapse of Silicon Valley Bank?

Dante Disparte, Circle's global policy chief and chief strategy officer, stated that Circle is currently protecting USDC from the impact of black swan events in the U.S. banking system, noting that Silicon Valley Bank is an important bank in the U.S. economy, and its collapse without a federal rescue plan would have broader implications for businesses, the banking industry, and entrepreneurs.

Fortunately, the U.S. government has stepped in.

According to the latest announcement from the FDIC, the agency has created a new entity called "Santa Clara Deposit Insurance National Bank (DINB)" and transferred Silicon Valley Bank deposits to this entity to protect customers. All insured depositors will have full access to their insured deposits by the morning of March 13 (next Monday), and the FDIC will pay interest in advance to uninsured depositors within the week. Uninsured depositors will receive a takeover certificate for the remaining amount of their uninsured funds, and as the FDIC sells Silicon Valley Bank's assets, interest may be paid to uninsured depositors in the future. The FDIC also confirmed that as of December 31, 2022, Silicon Valley Bank had total assets of approximately $209 billion and total deposits of approximately $175.4 billion. The amount of deposits exceeding the insurance limit at the time of closure has not yet been determined. Banking activities will resume no later than March 13, including online banking and other services, and Silicon Valley Bank's official checks will continue to clear.

If all goes well, Silicon Valley Bank's funding operations will restart on March 13, which means that Circle's wire transfer request to move the $3.3 billion balance from Silicon Valley Bank initiated on Thursday may also be processed.

Another piece of good news is that the funds at Silicon Valley Bank account for only a small portion of Circle's total. According to Simon Dixon, CEO of the online investment platform BnkToTheFuture, who revealed on social media, Circle CEO Jeremy Allaire stated that the company's "majority of cash" is held at Bank of New York Mellon, not Silicon Valley Bank (Note: BnkToTheFuture is an investor and shareholder of Circle).

Regardless, the recent failures of some cryptocurrency-friendly banks have left investors extremely uneasy and intensified market panic. Will Circle be able to turn the crisis of Silicon Valley Bank's collapse into an opportunity, or will it falter and become the next victim? We will see next week.