Circle rushes to USDC right after signing bank fails
The problem with Circle Internet Financial’s $3.3 billion cash reserves was apparently resolved on Sunday when federal regulators promised that depositors at the bankrupt Silicon Valley Bank would be restored quickly. But Circle’s stablecoin USDC is not out of the woods.
This is because Signature Bank, another essential financial institution for the crypto industry in general and USDC in particular, has just gone up in smoke. On Sunday, New York state officials shut down Signature “to protect depositors,” making it the third crypto-friendly bank to shut down in four days. Circle CEO Jeremy Allaire recognized on Twitter that meant the company could no longer mint or redeem USDC through Signature’s Signet product.
The sudden failure of Signature leaves a key piece of the crypto industry’s backbone infrastructure in limbo: Signet. It is a blockchain-based real-time payment system that is supposed to work 24/7. Circle, Coinbase, and many crypto trading companies have used Signet. But with Signature’s death, Signet also broke down.
When contacted on Sunday, Signet personnel officials said they did not know what would happen to Signet, but expected to hear more soon.
Allaire said in another tweet that the company “would bring in a new transaction banking partner with automated minting and redemption potentially as early as tomorrow.”
Signet’s fate could also prove significant for Coinbase. In its third-quarter letter to shareholders, Coinbase – another key company for USDC – said it had joined Signet to enable real-time payments and settlements. “Users can now add USDC to the Web3 ecosystem in less than 10 minutes,” the company said in the letter. Coinbase spokespersons did not immediately return a request for comment.
On Friday evening, Coinbase suspended redemptions between the US dollar and USDC and announced that they would reopen on Monday, when normal banking hours resume.
The USDC lost its peg to the U.S. dollar on Friday, hours after the SVB was placed into receivership by the FDIC, amid uncertainty over how much of its funds were actually held in the bank. Circle eventually said it had $3.3 billion, or about 8% of the funds supporting USDC, held by SVB.
Circle does not hold any USDC reserves with Signature Bank, a Circle spokesperson said in an email to CoinDesk.
At press time, the USDC was poised to regain its peg to the dollar, trading at around $0.99.
UPDATE: (March 13, 2023 02:00 UTC): Updates with Circle comment in penultimate paragraph.)
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