SVB collapse: crypto investors pull $3bn from stablecoin USDC in 3 days

USDC broke off its dollar peg on Saturday after Circle revealed that SVB had $3.3 billion in coin reserves.

According to data from CoinGecko, the stablecoin fell as low as $0.88 but recovered to $1 on Monday. Circle announced that it will allow automatic USDC redemptions through a new banking relationship with Cross River Bank.

Stablecoins are cryptocurrencies designed to maintain a stable exchange rate with traditional currencies. USDC is the second largest stablecoin with a market cap of $37.6 billion.

Circle’s blog post states that from Monday to Wednesday, Circle processed $3.8 billion of USDC redemptions (investors swapped their tokens back into US dollars) and created $0.8 billion more tokens, meaning that investors had more than three days’ worth of coins. In total, about $3 billion dollars have been taken out.

The rapid outflow comes after US banking regulators issued a new warning last month that crypto-related deposits in banks may be subject to liquidity risks. The regulator highlighted deposits linked to the stablecoin as susceptible to volatility during periods of market stress, if there is a rapid influx of redemption requests.

According to data from CoinGecko, investors pulled $6 billion out of the coin last week.

“The events of the past week have impacted USDC liquidity operations,” Circle said.

“We will continue our efforts to add additional transaction banking partners.”

Moody’s analysts said in a note that the loss of USDC’s peg shows that the relationship between the crypto world and traditional finance is unpredictable, and “may prompt financial institutions to reconsider working with stablecoin operators.” Can”.

“This scenario will increase the dependence of stablecoins on a small number of institutions and constrain their ability to maintain stable exchange rates,” Moody’s said.