Coinbase $3B Backstop Offer To Circle For USDC Stability

Mar. 21, 2023
Coinbase $3B Backstop Offer To Circle For USDC Stability

On the hectic weekend that followed Silicon Valley Bank’s demise, more information is now becoming available. One of the discoveries is that Coinbase had devised a plan to help Circle since the USDC stablecoin had strayed from its peg with the U.S. dollar following news that $3.3 billion of Circle’s deposits were trapped at the closed bank.

An insider revealed that Circle had instructed a fund transfer before the bank’s collapse. However, the transfer was unsuccessful due to the bank’s untimely bankruptcy. The unfortunate Friday incident affected Circle’s funds.

Circle faced a similar situation as other Silicon Valley Bank customers. The uncertainty lasted for three days causing anxiety. The fate of their deposits was unclear during that time. The FDIC insurance safeguarded these deposits only up to $250,000.

Circle faced a crisis as $3.3 billion was stranded, comprising less than 10% of their reserve deposits. Investors panicked and started selling off USDC in response to the news. As a result, the stablecoin’s value deviated from its peg and briefly traded at around 90 cents.

In the meantime, the exhausted Circle team worked feverishly to restore market confidence in the stability of its stablecoin. Circle found a solution with Coinbase, a former rival that now manages and profits from USDC alongside Circle.

Coinbase reportedly offered Circle a credit line for USDC reserves to ensure liquidity during Silicon Valley Bank’s collapse. The insider who revealed this information was aware of the agreement. The credit line would have enabled the easy conversion of the stablecoin to U.S. dollars. The arrangement aimed to secure complete liquidity for USDC reserves.

Regulators lifted FDIC on Sunday, ending the crisis sense. Companies were almost announcing credit facilities. The circle remains silent but hasn’t denied it.

Coinbase Backup Plan And Responsible Entities In Crypto

It remains uncertain whether Coinbase proposed backup plan would have yielded similar results to the FDIC announcement, which led to USDC’s peg collapse within hours.

However, this situation highlights how responsible entities in the cryptocurrency sector have the financial stability and prudence to prevent a banking crisis they did not cause.

On the same day, Binance tweeted that it has “temporarily paused auto-conversion of USDC to BUSD owing to current market conditions, notably related to heavy inflows & the increasing strain to support the conversion.”

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It is hoped that regulators, who have attempted to blame cryptocurrency for the current predicament, recognize the irony as they rush to rescue the banks that caused this problem in the first place.

Rida Fatima

News writer
An ardent wordsmith with a rich five-year background in delving into the realms of finance and cryptocurrencies. Alongside curating captivating blogs, Unique's talents extend to crafting imaginative and engaging content.