The issuer of stablecoin USDC announces that it will compensate for the shortage of 440 billion yen caused by the failure of Silicon Valley Bank

The issuer's Circle , which had deposited the equivalent of $ 3.3 billion (about 440 billion yen) of the digital stable coin USD Coin (USDC) reserve in the bankrupt Silicon Valley Bank, is in a situation where the return of the deposit is unclear. ``Even if there is a shortage, we will be able to convert USDC to the US dollar at a ratio of 1:1.''

An Update on USDC and Silicon Valley Bank
https://www.circle.com/blog/an-update-on-usdc-and-silicon-valley-bank

SVB Fallout: Circle's USDC Stablecoin Depegs on $3.3 Billion SVB Exposure - Bloomberg
https://www.bloomberg.com/news/articles/2023-03-11/usd-coin-stablecoin-falls-further-from-peg-on-svb-exposure-risk

Circle To 'Stand Behind' USDC, Cover $3.3 Billion Shortfall Held in Silicon Valley Bank - Decrypt
https://decrypt.co/123224/circle-to-stand-behind-usdc-cover-3-3-billion-shortfall-held-in-silicon-valley-bank

Coinbase Pauses Conversions Between USDC and US Dollars as Banking Crisis Roils Crypto
https://www.coindesk.com/business/2023/03/11/coinbase-pauses-conversions-between-usdc-and-us-dollars-as-banking-crisis-roils-crypto/

On March 10, 2023, Circle, the issuer of USDC, a stablecoin pegged 1:1 to the US dollar, discovered that it had $3.3 billion in custody at the failed Silicon Valley Bank. are announcing.

1/ Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.

—Circle (@circle) March 11, 2023

In response to this, the media all at once reported that ``USDC can no longer maintain linkage with the US dollar.''

US circle unable to withdraw 445 billion yen from Silicon Valley Bank-Nihon Keizai Shimbun
https://www.nikkei.com/article/DGXZQOUB114790R10C23A3000000/

USDC Fails to Maintain Dollar Peg as SVB Reserves $3.3 Billion - Bloomberg
https://www.bloomberg.co.jp/news/articles/2023-03-11/RRC8GOT1UM0W01

Amid growing concerns among cryptocurrency users over USDC, which has lost part of its reserves, cryptocurrency exchange Coinbase said, ``USDC and US dollar exchanges are temporarily suspended during the weekend when banks are closed. This is because the exchange relies on US dollar remittances that are cleared during normal banking hours, with USDC and US dollar exchange operations expected to resume on Monday when banks open for business. ” said.

We are temporarily pausing USDC:USD conversions over the weekend while banks are closed. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours.When banks open on Monday, we plan to re-commence conversions .

—Coinbase (@coinbase) March 11, 2023

However, Circle updated its official blog on the 12th with an update on the failed Silicon Valley Bank and USDC. The blog was also shared by Circle founder and CEO Jeremy Allaire on his Twitter account.

Sharing an Update on USDC and Silicon Valley Bank. https://t.co/Ug3qpot8sJ

— Jeremy Allaire (@jerallaire) March 11, 2023

Silicon Valley Bank was hit by a bank run similar to the 2008 Lehman shock, and deposits flowed out. ``Very few traditional banks have enough liquidity to withstand this bank run,'' Circle points out. As a result, Silicon Valley Bank suffered a large loss, was forced to sell long-term assets, and eventually went bankrupt.

USDC is 100% collateralized with a combination of cash and US government bonds. Specifically, 32.4 billion dollars (about 4.35 trillion yen), which is equivalent to 77% of the total, is secured by US Treasury short-term securities (maturity within 3 months), equivalent to the remaining 23% It seems that 9.7 billion dollars (about 1.3 trillion yen) is secured by cash held in various institutions. Of this $ 9.7 billion, $ 5.4 billion (about 725 billion yen) is stored in Bank of New York Mellon, the world's largest and most stable financial institution, but the remaining $ 3.3 billion is silicon It is believed to be in custody at Valley Bank.

Circle seems to have started transferring Silicon Valley Bank deposits to other banks as of March 9, 2023 (Thursday), but this remittance work has not been completed as of the 10th. However, Circle said, ``We trust the management of the Federal Deposit Insurance Corporation (FDIC) (responsible for managing the failed Silicon Valley banks) and believe that we will be able to successfully receive Silicon Valley bank deposits. ” is written.

Under FDIC policy, transfers initiated before a bank becomes a receiver are considered to have been processed normally. As a result, the FDIC is at the stage of confirming the status of transactions that took place before Silicon Valley Bank was placed under the control of the organization, and the '3.3 billion dollar remittance' that Circle made on the 10th. It seems that Circle believes that processing may also be processed (probably on the 13th) after FDIC confirmation.

Still, there is a good chance that 100% of the $3.3 billion stored in Silicon Valley Bank will not be returned. In such cases, in accordance with US remittance laws, Circle has announced that it will use external capital and company resources as necessary to make up for the shortfall. USDC is linked to the US dollar at a 1:1 ratio, but it is a form that guarantees that USDC can be converted to US dollars without breaking this 1:1 ratio even if the reserve is not returned. is.

The remaining 1 billion dollars (about 130 billion yen) is said to be stored in Customers Bank .