March 12, 2023

US Dollar Coin, the second most used stablecoin by market cap and meant to always remain priced at $1, fell into the higher 80’s on Friday March 10. However, overnight it began to recover. Here’s what happened and what we can expect:

USDC revealed that some $3.3 billion worth of the cash reserves that back USDC remain held at Silicon Valley Bank. This means that, absent that money, USDC is not 1:1 backed up with US dollars.

However, purely based on the analysis of SVB’s 2022 Annual Report (which you can find yourself at sec.gov). The following screen capture shows that SVC had $91b in long held maturities.

This image shows that they had about $16b in equity. 

The problem is that when forced to redeem those long held maturities early, the bank was under capitalized. That’s why the FDIC had to step in.

Yet, even after doing so, the FDIC should be able to liquidate SVB’s $188.4 billion assets (cash, AFS, discounted HTM, performing loans). This is 96% of all the $195.5 billion debt outstanding.

Can Circle cover the rest? Well, USDC has $33 billion in US Treasuries as well. The interest on their short term maturities is presently at 4.9% per annum. Taken over $33 billion, that equals $1.6 billion. That means they only need to recover $1.7b from SVB to remain solvent.

All these point’s suggest that the math doesn’t support an implosion. In fact, it suggests that there is a high chance that USDC will recover, because the $3.3 billion dollars trapped at SVB bank is likely to be returned.

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