Cryptocurrencies seem to have resisted exceptionally well the closure of Silicon Valley Bank, with the exception of the USD Coin (USDC) stablecoin, which since the bank’s collapse has suffered an outflow on the offering of $3.9 billion.
Holders of the stablecoin decided to abandon the idea that USDC was safe, despite Circle’s CEO reassuring everyone about the currency’s solvency.
The massive drop in the supply of the USD Coin (USDC) stablecoin
It certainly needs no introduction, USDC right after Tether (USDT) is one of the most popular and most capitalized stablecoins. The problem circulating around it, however, relates to its solvency, as it has many deposits on the collapsed SVB bank.
Indeed Circle, the issuer of USDC declared the day after the bank’s collapse (11 March) that 3.3 billion of USDC’s reserves remained pegged in Silicon Valley Bank.
Clearly, the statement caused some panic among the stablecoin holders, but also in the crypto community at large. Despite the fact that the price of USDC fell and then rose again to its dollar-equivalent price, demand still seems to be waning.
USDC‘s decline has benefited other stablecoins that were not involved with the bank failure that occurred last weekend.
In fact, the two stablecoins TrueUSD (TUSD) and Dai (DAI) experienced broad supply growth on par with USDC’s decline. TUSD registered a +57.4% while DAI registered a 27.4% increase.
DAI is the stablecoin that benefited the most in terms of gains, increasing its supply by $1.35 billion. USDT, TUSD, and FRAX follow with 0.94 billion, 0.73 billion, and 0.69 billion in bid growth, respectively.
Crypto companies involved with Silicon Valley Bank failure
As we have already made known, the largest exposure of the crypto world to the fall of Silicon Valley Bank, is that of Circle. USDC’s issuing company has an exposure of $3.3 billion.
While as for the total exposure of the companies, with regard to the fall of Silicon Valley Bank and Signature Bank is equivalent to $4 billion. With exposure of $3.5 billion for SVB and $500 million for Signature Bank.
Following Circle, Paxos and the crypto exchange Coinbase have funds pegged in the two banks worth $250 million and $240 million, respectively.
Concluding analysis
The failure of Silicon Valley Bank and e Signature Bank has undoubtedly had a significant impact on the stablecoin and cryptocurrency world.
Although the exact implications of the collapse are still being determined, it is clear that the fallout from this event will affect the entire industry for some time to come.
One of the most immediate consequences of the banking collapse was the disruption of the stablecoin market.
Given that many issuers rely on these banks to hold their reserve funds, the loss of access to these institutions has left many searching for alternative options.
This, in turn, has led to increased volatility and uncertainty in the stablecoin sector, with certain stablecoins experiencing significant fluctuations in value.
The failure of Silicon Valley Bank and e Signature Bank reminds us of the risks inherent in this space and the need for greater safeguards to protect investors and ensure market stability.
Despite these challenges, there is cause for optimism in the world of stablecoins and cryptocurrencies. As the industry continues to mature, we are likely to see increased innovation and greater collaboration among market participants.
With the right regulatory framework in place, there is reason to believe that stablecoins and other digital assets can play an important role in the global economy, offering a range of benefits to consumers, businesses and investors.