Stablecoin issuer Circle disclosed late Friday that around $3.3 billion of its $40 billion USDC reserves remained at Silicon Valley Bank. This comes after the high-tech lender’s share price dropped precipitously in response to a run on deposits by nervous consumers.

Silicon Valley Bank crumbled on Friday morning, sending shockwaves through the cryptocurrency and global markets, 48 hours after a capital crisis triggered the second-largest collapse of a US financial institution in history.

With a total supply of $43.5 billion, all of which is backed by government bonds and cash equivalents, USDC is the second largest stablecoin in circulation.

Regulators Shut Down Silicon Valley Bank

According to data from CoinMarketCap, USDC’s market capitalization decreased to $42.4 billion on Friday. The USDC also de-pegged from $1, a hint of concern over its existing reserves.

Silicon Valley Bank has been shuttered by California banking regulators, who are now in charge of the lender’s deposits, a Friday press statement from the Federal Deposit Insurance Corporation shows.

Based on reports, the FDIC has set up a new bank, the National Bank of Santa Clara, which will hold all of SVB’s assets.

With around $209 billion in assets at the end of 2022, Santa Clara-based SVB, known for lending money to some of the largest tech companies, was listed as the sixteenth largest bank in the United States.

In an effort to provide clarity on the problem, Circle reported on March 10 through Twitter that:

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 its most recent audit, Circle disclosed that as of January 31, $8.6 billion, or nearly 20% of its reserves, were stored in a number of financial institutions, including the newly insolvent Silvergate and defunct SVB. As a result, late this week, concerns grew concerning USDC.

USDC Depegs From US Dollar After SVB Collapse

Friday evening in New York, the price of USD Coin dropped to $0.9850. Stablecoins such as USD Coin are designed to maintain a 1:1 parity with highly liquid assets such as the US dollar or euro.

With over $40 billion in circulation, Circle’s token is second only to Tether’s USDT.

Specifics of the bank’s quick dissolution were a mishmash at the time of writing, but the US Federal Reserve’s relentless interest rate hikes over the last year, which had tightened financial conditions in the start-up sector in which SVB was a prominent player, appeared to have been among the primary causes of the bank’s closure.

On Wednesday, SVB disclosed that it had sold a number of instruments at a loss and would sell $2.25 billion in new shares to strengthen its balance sheet.

Principal venture capital firms reportedly instructed companies to withdraw their funds from the bank in response and out of panic.

What Happens Now?

Thursday, SVB’s stock plummeted, pulling other banks down with it. By Friday morning, the company had ceased trading of its stock and abandoned efforts to immediately raise funds or find a buyer.

Meanwhile, as other crypto companies published statements denying any exposure to Silicon Valley Bank, Circle simply stated that it was “working on an internal response.”

Friday evening, the company’s official Twitter account issued the following message:

Silicon Valley Bank is one of six banking partners Circle uses for managing the ~25% portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally.https://t.co/NU82jnajjY

— Circle (@circle) March 10, 2023

-Featured image from Twitter