Silicon Valley Bankruptcy

Venture capitalists and technology executives are scrambling to make sense of and account for the potential repercussions of the sudden implosion of Silicon Valley Bank on Friday.

The Federal Deposit Insurance Corporation, or FDIC, said Friday that U.S. federal regulators shut down Silicon Valley Bank, the premier financial institution for Silicon Valley tech startups for the past 40 years. The collapse of SVB represents the biggest banking failure since the 2008 global economic crisis. The collapse of the second largest in U.S. banking history — sent anxiety across the financial system and shook the tech industry, raising concerns about whether companies would be able to get their money back and pay their employees.

SVB Impact on Circle (USDC Stablecoin Manager)

Payments-technology firm Circle tweeted Friday that $3.3 billion of the $40 billion of its USD Coin (USDC) cryptocurrency reserves remained at Silicon Valley Bank.

“Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow the guidance provided by state and federal regulators,” the Boston-based company said in a tweet on Friday.

The bank, Circle said in another tweet, is one of six that it uses for managing the 25 percent of USDC reserves held in cash. The company had about $44.5 billion worth of tokens in circulation in January, according to a reserve report issued by accountants at Deloitte.

USDC Stablecoin Depegged

Circle Internet Financial's USDC stablecoin massively depegged from its intended $1 price – a harrowing development for a product designed as a place for investors to safely park money. The USDC/USDT pair (which tracks Circle's coin versus the bigger one issued by Tether) sank as low as $0.869 on the Kraken exchange at 07:16 UTC on Saturday – far lower than it ever got amid the market stresses that followed the FTX debacle in November. It was back around $0.94 as of 18:07 UTC.

Stablecoins derive their value from those reserves; if one is worth more than $43 billion – as USDC was earlier on Friday – there should be roughly that much cash or cash-like fixed-income instruments stashed somewhere backing that up. USDC's market capitalization has now slumped below $40 billion.

It's worth nothing to say that other stablecoins such as MakerDAO's DAI, FRAX, USDD have also depegged from $1. However, USDT, meanwhile, at one point spiked to $1.06 on Kraken versus the U.S. dollar as investors appeared to shift money away from USDC. Bitcoin climbed back above $20,000.

The Panic of USDC Users After Depegging

After the recent events, fear gripped USDC users (including me!). Many of them tried to swap their USDC into other currencies such as USDT (as the only stablecoin that did not lose its USDC-peg), BTC and ETH, and some others transferred their USDC to the centralized exchanges to be ready to sell it If the situation worsens, some other ppl (including me!) have not done anything maybe because they had full confidence in Circle and were sure that USDC will recover its USD-Peg in the near future.

The interesting and sad thing is that in the meantime, one of the users wanted to convert his 2 million USDC to USDT through Kyberswap, but due to the low liquidity of USDC, this amount was converted to only 0.05 USDT!

Currently, at the time of this analysis, USDC has managed to recover some of its lost value and its price is currently $0.96. In the last 24 hours, many efforts have been made by some famous people such as Vitalik Buterin, and Justin Sun, or some exchanges such as Coinbase to recover the USDC's lost value. More than 2.7 billion USDC has been burned in the last 24 hours. Companies such as Coinbase (at least $1.78 billion USDC) and Jump Trading (96 million USDC) have also redeemed this stablecoin.

An Update on USDC and Silicon Valley Bank

Circle recently announced that if Silicon Valley Bank fails to return all their deposits, or if the process takes too long, they will compensate the deficit of USDC using the company's resources. Circle has said that if necessary, they will also accept capital from outsources.