Circle Scrambles to Right USDC After Signature Bank Failure
Circle Internet Financial is racing to find new banking partners for its USDC stablecoin.
Circle Internet Financial’s $3.3 billion cash reserves problem was seemingly solved Sunday when federal regulators promised that depositors of failed Silicon Valley Bank would be made whole in short order. But Circle’s USDC stablecoin isn’t out of the woods.
That’s because Signature Bank, another critical financial institution to the crypto industry broadly and to USDC specifically, has just gone up in smoke. On Sunday, New York state officials shuttered Signature “in order to protect depositors,” making it the third crypto-friendly bank to go dark in four days. Circle CEO Jeremy Allaire acknowledged on Twitter that this meant the company could no longer mint or redeem USDC through Signature’s Signet product.
Signature’s sudden failure leaves a key part of the crypto industry’s back-end infrastructure in limbo: Signet. It’s a blockchain-based real time payments system that’s supposed to work 24/7. Circle, Coinbase and many crypto trading firms used Signet. But with the death of Signature, Signet, too, has gone kaput.
When contacted Sunday, officials staffing Signet said they were in the dark on what would happen to Signet but expected to learn more information soon.
Allaire said in another tweet that the company would be “bringing on a new transaction banking partner with automated minting and redemption potentially as soon as tomorrow.”
The fate of Signet may prove important for Coinbase, too. In its third-quarter shareholder letter, Coinbase – another key company for USDC – said it had joined Signet to allow for real-time payments and settlements. “Users can now add USDC to the Web3 ecosystem in under 10 minutes,” the company said in the letter. Coinbase spokespeople did not immediately return a request for comment.
Late Friday Coinbase paused redemptions between U.S. dollars and USDC and said they would reopen Monday, when normal banking hours resumed.
USDC lost its peg to the U.S. dollar on Friday, hours after SVB entered FDIC receivership, amid uncertainty about how much of its funds were actually held in the bank. Circle eventually said it held $3.3 billion, or about 8% of the funds backing USDC, were held at SVB.
Circle holds no USDC reserves with Signature Bank, a Circle spokesperson said in an email to CoinDesk.
As of press time, USDC had gotten closer to regaining its peg to the dollar, trading at around 99 cents.
UPDATE: (March 13, 2023 02:00 UTC): Adds Circle comment in penultimate paragraph.
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