Scrutiny Falls On $43 Billion USDC Stablecoin's Cash Reserves At Failed SVB

Krisztian Sandor writes via CoinDesk: U.S.-based stablecoin issuer Circle held a part of its USDC stablecoin's cash reserves at Silicon Valley Bank as of Jan. 17, according to the firm's latest attestation (PDF). USDC is the second-largest stablecoin on the market, with a $43 billion circulating supply that is fully backed by government bonds and cash-like assets. According to Circle's January reserve report, the firm held some $9.88 billion of cash deposited at regulated banks to back USDC's value. USDC's banking partners included Silicon Valley Bank (SVB), the California-based bank that was taken over by regulators and shut down on Friday. The full list of banks that held cash for Circle's USDC are Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank (a division of Flagstar Bank, N.A.), Signature Bank, Silicon Valley Bank and Silvergate Bank. Circle also keeps some part of USDC reserves in a dedicated BlackRock fund.

Circle said last week it had cut ties with Silvergate Bank, the crypto-friendly bank that halted operations and said it would "voluntarily liquidate" its assets earlier this week. Signature Bank's holding company's (SI) shares have dropped 12% on the news about SVB's shutdown. Signature said in December that it would reduce deposits tied to crypto firms by as much as $10 billion. Simon Dixon, CEO of online investment platform BnkToTheFuture, tweeted that Circle's chief executive Jeremy Allaire said the firm held "most of their cash is in BNY Melon," while sharing a screenshot from March 2. BnkToTheFuture is an investor and shareholder in Circle.

The crypto scam unfolds to the next stage

[klipclop]

Cryptos only purpose was to create mirror (unregulated) technologies and services in parallel to the real banking system. Once that was in place crypto was used to syphon your dollars into the crypto promoters pockets. To help add liquidity to the crypto environment, the Ponzi masterminds engaged in wholesale money laundering money for criminal organizations. Now it seems like another lynch pin in this saga is coming undone. Good riddance!

Re:

[Whateverthisis]

Fair enough about crypto, but this is an issue.

What we're also seeing is the inter-related world of finance and how it ripples through the economy. SVB primarily had funds in startups and VCs, effectively being very not diversified in it's portfolio of depositors. The unfortunate thing is Crypto's deposits are enormous compared to most other startups, so I don't know this for sure but it's very likely that the crypto implosion is triggering this.

But the problem is too many startups banked with SVB

Re:

[iMadeGhostzilla]

To top it off many SV startups seem to be SaaS for something or other and a lot of those cater to other startups.

Why trust banks?

[GargamelSpaceman]

Wouldn't it make more sense to trust a smart contract to regulate the value of a stablecoin?

https://medium.com/mycrypto/wh... [medium.com]

Re:Why trust banks?

[Admiral Krunch]

Wouldn't it make more sense to trust a smart contract to regulate the value of a stablecoin?

https://medium.com/mycrypto/wh... [medium.com]

Wouldn't it make more sense to not fall for the "stablecoin" scams in the first place?

Re:

[GargamelSpaceman]

Thinking banks aren't a scam... At least Dai is overcapitalized... There's others too.. I think kava has one... not sure how it works.

Re:

[Darinbob]

Banks aren't a scam. They may be badly run at times. but they do what they say they do.

As for badly run, it's a cycle - bankers are told to play it safe with customers money, they say yes, then later they see a get-rich-quick scheme and thinking that they are smarter than everyone else they make bad investments, then they lose customer's money, then the government scolds them, and the cycle repeats.

Re:

[GargamelSpaceman]

They are a scam because they create new money to drive up the prices of things and then the things prices fall and people can't pay back the loans and the disaster is born by everyone while the profits were made by a few.

It' all very analogous to the goldsmith of yor printing out IOUs promising to be able to exchange them for gold int he future when the future is unpredictable.

Ultimately banks are in the business of underwriting risk and allocating capital. When it doesn't go according to plan ( there is n

Re: Why trust banks?

[gnasher719]

Scam or not, if this report is right then they had 43 billion in cash that they invested, and that they now cannot access.

Re:

[Powercntrl]

Wouldn't it make more sense to trust a smart contract to regulate the value of a stablecoin?

Problem is, there's only so much price manipulation you can achieve with simple supply and demand modifications alone.

I only have one used Kleenex right here that I just blew my nose on. One of a kind, very rare. Want to buy it?

Re:

[GargamelSpaceman]

Not sure what you're getting at. If you have control over supply and demand you have absolute control over price

Re: Why trust banks?

[reanjr]

Yeah, that worked well for Terra coin...

Re:

[John Smith 2294]

Just like lime will work well in your esophagus.

Sounds like "stable" might be the new "smart"

[istartedi]

It's LunaCoin all over again? It's starting to sound like "stable" in the context of crypto means "blows up and destroys things" just like "smart" in other contexts means "spies on you and gets bricked on a company's whim".

Debt

[backslashdot]

If you owe the bank five thousand dollars, you have a problem. If you owe the bank five million dollars, the bank has a problem.

Re:

[backslashdot]

That quote isn't mine btw .. i don't recall who said it.

Re:

[ISayWeOnlyToBePolite]

That quote isn't mine btw .. i don't recall who said it.

"If you owe your bank a hundred pounds, you have a problem. But if you owe your bank a million pounds, it has." - John Maynard Keynes

Re:

[rcb1974]

The bank really only has 1/20th of a problem because banks issue loans in excess of 20x what they actually have on deposit (low capitalization). Whereas you the borrower have in excess of 20/20ths of a problem because you owe the bank the 1/20th of their despositor's money that they loaned you PLUS the 19/20ths of the money that they created out of thin air via fractional reserve lending PLUS you owe the interest on the debt you incurred! It is very easy to make money as a bank if you can practice fractiona

economics professor: uhm, no

[hawk]

that simply isn't true, and isn't how fractional reserve banking works.

At a 5% reserve level, when a bank gets a dollar in deposits, it can issue ninety-five cents in loans--not the twenty bucks you suggest.

The person who borrow that ninety-five cents deposits it somewhere, and *that* bank (which could be the same one) is able to loan out almost ninety cents.

The next bank can loan about eighty-four cents, and so on.

Now, the infinite sum does indeed come to 1/f, where f is the fractional reserve requirement

Re: economics professor: uhm, no

[rcb1974]

You're exactly right on this point; you being an economics professor doesn't mean you're right. What I said was true. Btw, not everyone is stupid enough to store much money in the bank. When I sell my house to the new owner, I'm taking cash. Bills. If they cant give me bills I'll charge a 3% premium then immediately withdraw their electronic money from my bank as cash so that it stays in the bank's hands for the least amount of time possible. Those bills won't get put into yet another f**ing bank acco

Re:

[Admiral Krunch]

They don't pay you interest anymore so why risk it?

a real store of value like bullion, fine art or antiquities

What's the interest rate on bullion, fine art and antiquities?
Only one of those is in any way liquid if you want your money back in a reasonable time-frame too.
Seems like you have an irrational hatred of banks, and you are trying to find excuses to justify it.

Re:

[hawk]

>What I said was true.

no, it wasn't.

You stated that a bank can lend out twenty times its deposits, which is simply false.

Re: Debt

[gnasher719]

If the bank owes you 43 billion dollar, you have a real problem.

Re:

[backslashdot]

When the bank owes people 43 billion, taxpayers have a problem.

"Too big to fail."

Re:

[martinfb]

Takeaway: Borrow lots more.

If you have to keep saying that it's stable...

[The Evil Atheist]

...it isn't.

My favorite recent bit of crypto nonsense

[rsilvergun]

Was seeing people on crypto forums telling each other to buy the dip on stable coins which are supposed to be $1 to one coin.

Again we need to keep this crap out of our financial system. Otherwise it's going to take us all down with it just like mortgage-backed securities did in 2008.

Re:

[Anonymous Coward]

Otherwise it's going to take us all down with it just like mortgage-backed securities did in 2008.

yeah, too bad we never removed those people from our financial system. For some reason we still look up to them. But we sure showed Martha Stewart who's boss, didn't we?

Re:

[Darinbob]

No bail outs this time we can hope. Banks need to learn from their mistakes, such as to not play silly games with other people's money. Instead of crack and mortgaged backed securities, this times it's fentanyl and crypto assets.

Re:

[rsilvergun]

Y'all do realize that was entirely the point, right? Stable coins aren't stable. Many of them use algorithmic tricks to make it look like they are. And many of them have dubious cash reserves. And many of them suffer from both. So they "unpeg" and become worth less than a dollar. In a barely functioning market that would cause them to collapse and go away but in this crazy crypto landscape people buy them up hoping they'll go back up in value

Re:

[TheRealMindChild]

Y'all do realize that was entirely the point, right? Stable coins aren't stable
 
All the stable coins on all exchanges right now are only as far from the $1 peg, that buying/selling millions of dollars, your sale will only be $10 away from your represented dollar amount. Again, you are full of shit

Re: My favorite recent bit of crypto nonsense

[kurkosdr]

That's something I don't "get": How do you know your supposedly USD-backed stablecoins are backed 1:1 as promised? There has been no audit done in any stablecoin out there. Tether was supposed to be 1:1 backed with deposits, then they changed their website to say that now it's backed by "assets". How do you know those assets exist and are liquidateable? Which begs the question: Why do people hold stablecoins? At least with crypto coins it's a form of gambling and you may get ahead (just don't gamble your li

SVB was turned over to

[hdyoung]

The FDIC so, doesn’t that mean that Circle is now entitled to recover approximately 100,000 dollars of the 10 billion that they deposited there? Maybe not even that, since only “insured accounts” get that. Yeah, they passed a Deloitte audit, but a fat lot of good that does when the bank holding the assets goes “poof” for some shady reason.

Supposedly USDC was legit backed dollar-for-dollar. Now, suddenly, the billions are evaporating. Just like the rest of the ecosystem. I s

Re:

[Adambomb]

FDIC coverage is $250,000, not that that difference changes much of anything heh

Re:

[bsdetector101]

I stopped believing any and every crypto claim about 6 months ago. What took you so long ????

Re:

[account_deleted]

Comment removed based on user account deletion

Re: SVB was turned over to

[hdyoung]

Hm. Thanks for clarifying. Sincerely hope youre right. But Im skeptical until the cash actually transfers.

Re: SVB was turned over to

[gnasher719]

SVB had about 30 billion government bonds at 0 percent interest. Now you get them with 4% interest, so SVBâ(TM)s bonds are now worth 24 billion only. When they had to sell them to get cash, that turned into a real loss.

Re:

[hawk]

depositors under the deposit limit get *everything*, and they get it this coming Monday (two business days later).

Then either the FDIC, or (more often) the bank that they get to take over the failed bank liquidates all the assets of the failed bank, and pays the uninsured deposits pro rata.

In this particular case, the reports I've seen have the total assets (as opposed to liquid) significantly exceeding the liabilities, so even given costs of sale, the uninsured depositors should get at least most of their

Hate to say I told you so

[OrangeTide]

Nah, just kidding. It's one of the few pleasures in my life.

We've been harping on how bad of an idea this crypto stuff is. Many people in your life have told you that there ain't no such thing as a free lunch. We've gone over the definition of ponzi scheme many times. Actual crypto bros have openly admitted to so-called rug pulls and pump and dump schemes.

Yet here we are. Billions of dollars, from retirement to vital capital, is tied up in this absolute shit show of a financial scam. It's like a con artist,

Re:

[The Evil Atheist]

It's basically become a cult. Almost like an offshoot of the prosperity gospel, or the same line of thinking as "The Secret".

That's the thing: we all know this is predictable human behaviour.

What happened (and still happens) to those megachurch pastors who get exposed? Their followers don't up and leave, but follow them even more fervently. They know that if they really believe hard enough that it will somehow make them not frauds.

Not a crypto issue

[Mr-E2]

So many people misunderstanding what is happening here. This isn't a crypto problem, it's a banking one. The fact that a crypto company had massive amounts of cash is this bank is irrelevant. The bank took customer deposits and invested them badly. When depositors got spooked and tried to withdraw their money it triggered and bank run, they ran out of cash and went under. The fact that banks are allowed to run in this under capitalised way is one of the reasons crypto exists in the first place!

Re:

[Anonymous Coward]

This isn't a crypto problem, it's a banking one.

...

The fact that banks are allowed to run in this under capitalised way is one of the reasons crypto exists in the first place!

So you're saying that cryptocurrencies are exposed to the very problem that they're supposed to solve and that somehow that sn't a cryptocurrency problem? This is like if I sell a product as a safe alternative to asbestos except it's made of asbestos.

Re: Not a crypto issue

[Mr-E2]

It's a massive short term problem for crypto - I agree. It's just that the root cause is with the traditional banking system. Lots of companies have money stuck there. That's what I meant by not a crypto issue.

Stablecoin Concept Absurd

[coop247]

1. You give us real dollars, we give you Dave and Buster dollar coins
2. We take your dollar and either store it in a shady bank or buy US treasuries.
3. We offer you 12% APR on your D&B coins, despite the dollar you gave us making ~2% in treasuries
4. ????
5. Everybody profits, but especially our executives

Re:

[clovis]

Can you really get me a steady 12% on Dave and Buster coins? Asking for a friend's bank.

Harry & The Gold-Digger had $M in SVB

[schwit1]

https://twitter.com/isource_ne... [twitter.com]

This is definitely not funny. So whatever you do, don't laugh.

If I understand it rightâ¦

[gnasher719]

So they canâ(TM)t access these 43 billion dollars right now. As and when people who borrowed money from SVP pay their money back, depositors will get part of their money back. That will take ages. Imagine you got a thirty year mortgage from SVP. Of course you have to pay it back. Over 30 years. My guess is that over the next 30 years they will get about 36 billion dollars back. Wondering if they will survive that long.