The world’s fifth-largest cryptocurrency, USD Coin, has experienced a significant drop in value due to the abrupt collapse of Silicon Valley Bank. The stablecoin fell to a record low of $0.87 after it was revealed that $3.3 billion of the approximately $10 billion cash reserves backing USDC was held by SVB. This news has raised concerns about a possible ripple effect among Web3 companies.
As a stablecoin, USDC is supposed to remain stable thanks to its peg to the US dollar. However, the recent drop is unprecedented, and the value of USDC has fallen below its previous all-time low of about $0.97 in 2018. The currency fell to $0.99 following the collapse of Three Arrows Capital, but it has now dropped even further.
The effect of a sustained USDC drop would be enormous, according to Web3 is Going Just Great creator Molly White. A handful of other stablecoins, including FRAX and DAI, use USDC as collateral, which could lead to further instability in the market.
Circle, the company that manages USDC, has said that it will continue to operate normally while it waits for more information on what will happen to SVB’s clients. The company has initiated transfers of the funds held by SVB to other banking partners, but these transfers had not yet been settled as of close of business on Friday.
Circle has also stated that $5.4 billion of its cash assets are held by BNY Mellon, one of the largest and most stable financial institutions in the world. This should provide some reassurance to investors that Circle is taking steps to mitigate the impact of SVB’s collapse on USDC.
In conclusion, the collapse of Silicon Valley Bank has had a significant impact on the value of USD Coin, raising concerns about a possible ripple effect among Web3 companies. While Circle has taken steps to mitigate the impact of SVB’s collapse on USDC, the situation remains uncertain. Investors will be watching closely to see how this situation develops and what impact it will have on the wider cryptocurrency market.