In a somewhat late communication on Saturday, Circle, the issuer of the long-drifted stablecoin USDC, announced that the company is committed to covering any shortfall in the assets backing its token. As of Monday when the banks open, the company will cover repayments at a 1:1 ratio with the dollar.
Indeed, last night Circle officially communicated what was to come for its USDC stablecoin.
USDC liquidity operations will resume as normal when banks open Monday morning in the United States. As a practical matter, our teams are well prepared to handle significant volume […]. As a regulated payment token, USDC will remain redeemable 1-for-1 with the U.S. dollar.
Circle will stand behind USDC and cover any shortfall using company resources
As a reminder, it all started with the collapse of Silicon Valley Bank (SVB). The bad news spread to the USDC stablecoin, which was known to hold some of its reserves, when several companies paused the conversion between the USDC and the dollar.
But Circle’s statement brought back some calm. For the $3.3 billion in cash tied up at Silicon Valley Bank, Circle is considering several options.
The first scenario is a release of the funds as early as Monday. Indeed, the cash withdrawal was initiated before the California branch of the Federal Deposit Insurance Corporation (FDIC) ordered the receivership of SVB and these assets. According to the normal procedure, the transfer should thus take place normally.
Nevertheless, there is a chance that the $3.3 billion will remain tied up. In that case, it is expected that the return of the assets will take time, given the paperwork involved. In the meantime, the FDIC will issue an IOU to Circle for repayment. It is also not impossible that the amount at stake may not be fully covered.
In the extreme case that the $3.3 billion is totally lost, Circle will cover the losses itself, even if it means having to raise funds:
“In such a case, Circle, as required by law under the stored value money transmission regulations, will stand behind the USDC and cover any shortfall using the company’s resources, involving outside capital if necessary.”