Following the chaotic weekend that followed the collapse of Silicon Valley Bank, new details have emerged about how Coinbase came to the rescue of Circle after the USDC stablecoin broke its peg with the dollar.
This occurred after news broke that $3.3 billion of Circle’s deposits were stranded at the failed bank. According to a source familiar with the arrangement, Circle had sent instructions to wire out its funds on Friday, but the bank collapsed before the wire could go through.
This left Circle in the same position as hundreds of other Silicon Valley Bank customers who spent three days in uncertainty about their deposits, which were only insured up to $250,000 under FDIC insurance.
Although the stranded $3.3 billion represented less than 10% of Circle’s total reserve deposits, panicked investors sold off USDC, causing the stablecoin to break its peg and briefly trade at around 90 cents.
Circle’s team worked tirelessly to reassure markets that its stablecoin was still worth a dollar. It found a potential lifeline with Coinbase, its former rival that now shares in the management and profits of USDC.
The source revealed that Coinbase offered an immediate line of credit to Circle, guaranteeing full liquidity for USDC reserves and ensuring that the stablecoin could be converted to U.S. dollars on the Monday morning following the collapse of Silicon Valley Bank.
The companies were on the verge of announcing the credit facility, but the same Sunday, banking regulators lifted the FDIC insurance and dispelled the sense of crisis. Circle declined to comment on the events, but did not deny them.
The scenario highlights how responsible actors in the crypto industry had the solvency and maturity to stave off a banking crisis not of their making. It is hoped that regulators, who have often vilified crypto in the current crisis, will appreciate the irony as they scramble to bail out the banks that created the mess to begin with.
