USDC, Silicone Valley Bank and Signature Bank – Latest Updates

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In Brief

Circle will receive its SVB deposit in full.
Keeping $USDC safe, move cash to BNY Mellon.
Signature Bank was closed by the US authorities. Now they will give USD for USDC through BNY Mellon.

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Jeremy Allaire, co-founder and CEO of Circle, updated the community on the status of USDC after the recent depeg. In the wake of recent regulatory and banking developments, Allaire provided reassurance that USDC deposits and reserves are safe and secure.

USDC - saved or nah
USDC – saved or nah

USDC Monday update

Allaire acknowledged the steps taken by the US government and financial regulators to mitigate risks associated with the fractional banking system. He emphasized that 100% of deposits from Silicon Valley Bank (SVB) are secure and will be available at banking open tomorrow. In addition, he stated that 100% of USDC reserves are also safe and secure, and Circle will complete its transfer for remaining SVB cash to BNY Mellon.

Allaire also provided updates on liquidity operations for USDC, stating that they will resume at banking open tomorrow morning. However, he noted that with the closure of Signature Bank, Circle will not be able to process minting and redemption through SigNet. Instead, they will rely on settlements through BNY Mellon. Circle is also in the process of bringing on a new transaction banking partner with automated minting and redemption, potentially as soon as tomorrow.

About Circle

Circle is committed to building robust and automated USDC settlement and reserve operations with the highest quality and transparency. Allaire hinted that a much longer thread will be coming soon, with some reflections on all of the past weeks’ events.

Circle has long advocated for full-reserve digital currency banking that insulates the base layer of internet money and payment systems from fractional reserve banking risk. Allaire highlighted the Payment Stablecoin Act, a legislative effort that would enshrine in law a regime where stablecoin funds would be held with cash at the Fed and short-term T-Bills.

All in all, Allaire’s tweet thread provides some much-needed reassurance to the community amid recent regulatory and banking developments. Circle’s commitment to transparency and building a safe financial system is admirable, and it will be interesting to see how they navigate the ever-evolving landscape of stablecoins and regulation.

Different point of view on USDC

At the same time, there is an interesting point of view related to the issue of regulation and the USDC in general.

Alfonso Peccatiello, the founderof and host of Blockworks Macro, shared his thoughts on the massive announcement made by the Federal Reserve and US policymakers regarding Silicon Valley Bank (SVB) and Signature Bank. In his tweets, Peccatiello highlighted the key aspects of the announcement and offered his opinion on the matter.

According to Peccatiello, the announcement essentially ensured that all depositors of SVB and Signature Bank would be made whole. However, he noted that shareholders and certain unsecured debtholders would not be protected, and senior management had been removed. He further added that uninsured depositors would have access to all of their money starting Monday, March 13.

Peccatiello went on to explain that the Fed had introduced a new facility called the Bank Funding Term Program, which aimed to provide liquidity to banks under stress. The idea was to provide banks with an alternative to liquidate their bond holdings when in need of raising liquidity to meet deposit outflows.

Fed and US

Peccatiello viewed the new facility as an excellent move by the Fed and US policymakers. He explained that funding would be available at 1-year OIS (Overnight Index Swap), which is market-implied Fed Funds, plus a meagre 10 basis point spread on top.

Essentially, this would provide one year of guaranteed liquidity at Fed Funds plus 10 bps posting collateral valued at par. He added that it was a great deal for banks under stress, even though they would end up paying 4-5% for their funding, which was much better than going belly up in a regional bank run.

In conclusion, Peccatiello shared his thoughts on the package, noting that there was no bailout for equity owners, but uninsured depositors were compensateDd as much as possible. He praised the new facility for providing very reasonably priced funding to banks under stress, and although banks would end up paying more for funding, it was still a much better proposition than going bankrupt.

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