Circle Internet Financial’s $3.3 billion cash reserves problem was seemingly solved on Sunday when federal regulators promised that depositors of failed Silicon Valley Bank would be made whole. However, Circle’s USDC stablecoin is still in danger due to the closure of Signature Bank, another key financial institution for the crypto industry and USDC. On Sunday, New York state officials shut down Signature Bank “in order to protect depositors,” making it the third crypto-friendly bank to go dark in four days. This closure puts USDC in a precarious position, as the crypto industry is now without two of its most important financial institutions.
Circle, Coinbase and many crypto trading firms have been left in limbo after the sudden failure of Signature, a blockchain-based real time payments system. Signature’s Signet product, which was used by Circle and Coinbase to mint and redeem USDC, is now defunct. Officials staffing Signet are currently in the dark on what will happen to the product, but expect to learn more information soon. This failure has left a key part of the crypto industry’s backend infrastructure in limbo, and has caused disruption for many crypto trading firms.
Coinbase, a key company for USDC, has announced that it will be bringing on a new transaction banking partner with automated minting and redemption potentially as soon as tomorrow. This new partner will allow for real-time payments and settlements, allowing users to add USDC to the Web3 ecosystem in under 10 minutes. This could prove to be an important step for Coinbase, as well as for Signet, the company’s current transaction banking partner. With this new partner, Coinbase and Signet will be able to provide faster and more efficient services to their customers.
Coinbase paused redemptions between U.S. dollars and USDC on Friday due to uncertainty surrounding the funds held in Silicon Valley Bank (SVB). USDC had lost its peg to the U.S. dollar, but Circle eventually revealed that $3.3 billion, or 8% of the funds backing USDC, were held at SVB. Coinbase resumed redemptions on Monday when normal banking hours resumed. USDC has since gotten closer to regaining its peg to the dollar, trading at around $0.99. Circle also likely holds some amount of USDC reserves with Signature, and regulators have pledged to make Signature depositors whole.
