From Adversity to Advantage: USDC Emerges From Banking Crisis Stronger Than Before

The USD Coin (USDC) stablecoin has upgraded its market infrastructure to emerge stronger from the March banking crisis.

During the Consensus conference on Wednesday, Circle CEO Jeremy Allaire claimed that the company has weathered the recent bank crisis in the US successfully and has taken extra measures to become the strongest and safest stablecoin issuer.

“We’ve successfully navigated this crisis, and have actually upgraded the market infrastructure behind USDC to be by far the strongest, safest digital dollar on the internet today, hands down, there’s no question.”

He also compared USDC and other stablecoins, claiming that the former is much safer in contrast to other “alternatives we don’t know much about.”

Arguably, Allaire was hinting at Tether (USDT), the largest stablecoin by market cap, which has been at the center of increasing scrutiny due to its vague banking relationships and reserves.

Nevertheless, the market has acted in favor of USDT. While USDC’s market cap has fallen to $29 billion from $39 billion since March’s banking crisis, Tether has actually gained market share.

How USDC Managed the Banking Crisis?

In early March, it was revealed that Circle had $3.3 billion of its $40 billion USDC reserves held in an account at the fallen lender Silicon Valley Bank.

Subsequently, the company’s stablecoin was hit with redemptions amid growing concerns around its reserve.

The wave of withdrawals put some pressure on USDC’s dollar peg, causing it to distance away from the intended $1. According to data from crypto aggregator CoinMarketCap, the stablecoin’s price slid to an all-time low of around $0.8774 on Saturday.

In a bid to address the uncertainty, USDC issuer Circle pledged to cover any shortfall in the stablecoin’s reserves if it does not receive the entirety of the $3.3 billion held at SVB.

Circle said that the company would cover any shortfall in the USDC reserves that materialize from their exposure to SVB using corporate resources, which might even involve external capital.

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

These T-Bills were 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.

USDC Regained its Dollar Peg After Government Intervention

USDC managed to regain its dollar peg by mid-March, particularly after US regulators announced they would use the FDIC’s insurance funds to prevent depositors from losing money as part of emergency measures to avert a banking crisis and restore confidence in the banking system.

Jeremy Allaire, CEO of Circle, praised the government’s intervention. He said in a statement:

“We are heartened to see the U.S. government and financial regulators take crucial steps to mitigate risks extending from the banking system. We’ve long advocated for full-reserve digital currency banking that insulates our base layer of internet money and payment systems from fractional reserve banking risk.”

As of now, USDC is trading at $0.9999, according to data by CoinMarketCap. However, Circle has insured customers that USDC remains redeemable 1-to-1 with the US dollar.

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