When it became clear that Circle had $3.3 billion stuck at the Silicon Valley Bank the market went wild. USDC lost its peg and was trading way below 1 US-Dollar. Bear market PTSD set in and the broader crypto media was already discussing if USDC would fail. Fortunately, things turned around shortly after the initial turmoil and Circle was made whole again. This has been a big relief for the market but needs some explanation.

How did the SVB drama play out for Circle and is USDC out of the woods?

FDIC made depositors' whole

The Silicon Valley Bank was one of the top 20 banks in the US. Its downfall caused a lot of uncertainty among depositors of other banks. In response to this situation and to prevent a full-blown bank run, the FDIC declared that SVB had systemic relevance to the US banking system.

This was a big relief for depositors since it meant that the Fed, the FDIC, and the Treasury Department would make all depositors whole. Only shareholders of SVB were left behind empty-handed. What we are looking at is not the same as the situation in 2008. It is only half a bailout because only depositors were rescued.

Lucky for Circle because they had $3.3 billion stuck at SVB. Under normal circumstances, only $250,000 would have been insured by the FDIC. In conclusion, the US government saved the day and a stablecoin from losing its peg. At that time, Circle only had about $37 billion to cover 40 billion USDC and most of that money was invested in treasury bills.

Circle says that USDC redemption is back to normal levels

On Wednesday Circle published a blog post to address the situation. According to the company, it had redeemed USDC worth $3.8 billion by Monday and minted USDC worth $800 million at that point. Circle engaged in new banking partnerships on Tuesday. US and international wire transfers are working again.

USDC has also regained its peg and is trading close to 1 US-Dollar again. Investors are still monitoring the situation closely as past experiences with UST have left them deeply traumatized. Ironically, the government saved a crypto asset along with a bank.

With this crisis being resolved Circle along with the rest of the crypto market dodged a bullet. Now that the company is operating at normal levels, trust among investors can be regained.

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