Circle, the operator of one of the world's largest stablecoins, has said $3.3bn of its reserves are locked up at Silicon Valley Bank, sending its token's value plunging as the crypto market reels from the failure of two US banks this week.
Circle's announcement overnight on Friday caused the company's USDC crypto token to lose its peg to the dollar.
US exchange Coinbase said it was temporarily pausing conversions between USDC and the US dollar. Rival exchange Binance also said it would stop automatic conversions from USDC to BUSD, a Binance-branded stablecoin.
Circle called for an urgent federal bailout plan for SVB.
The collapse of SVB, the the second longest bank failure in US history, is beginning to spill over to clients, in a fresh blow to the crypto market, which is still reeling from a crisis of confidence last year that wiped out many of its biggest names .
Earlier this week, Silvergate, a US bank that had courted cryptocurrency customers, said that chill out operations after a run on deposits.
Stablecoins play a key role in connecting the traditional and crypto markets, with traders using them like cash or crypto-native dollars to transact. Most track the value of a major currency like the dollar one by one. Stablecoin traders typically earn interest on the traditional assets underlying their tokens, with increased supply in circulation increasing revenue.
Circle's USD coin is the second largest stablecoin in the crypto market with $42 billion in circulation, according to company data.
The company said it holds a quarter of USDC's reserves in cash with six banking partners, of which SVB was one. Most of its $40 billion reserves are held in short-term US government bonds and other US banks.
In a blog post on Saturday, Circle said that USDC liquidity operations will resume when banks open on Monday. The firm added that it would use corporate resources, involving outside capital if necessary, if SVB does not return 100 percent of the deposits.
โIt is not just the cryptocurrencies themselves that are under pressure: now the banks that support the industry itself are failing. And stablecoins like USDC are the way in and out of crypto for many investors,โ said Charley Cooper, former chief of staff at the Commodity Futures Trading Commission, the US regulator.
โThe threat even to countries backed by reserves [stablecoin] The model has called into question the viability of the intersection between cryptocurrencies and traditional finance,โ he said.
Dante Disparte, Circle's chief strategy officer, warned on Saturday that the company was protecting its stablecoin from a "black swan failure in the US banking system."
โSVB is a critical bank in the US economy and its failure, without a federal bailout, will have broader implications for business, banking and entrepreneurs,โ he tweeted.
Circle said it would continue to operate as normal while awaiting clarity from US regulators on how the SVB ruling will affect its depositors, Circle and USDC. He did not immediately respond to a request for comment.
Since the SVB collapse, the USDC token has traded as low as 88 cents on the dollar, according to industry price-tracking website CoinMarketCap.
Circle had cash at a number of regulated US financial institutions, including Silvergate and SVB, it disclosed.
