Coinbase’s line of credit to Circle
Details continue to emerge about the chaotic weekend that followed the collapse of Silicon Valley Bank — including a plan by Coinbase to ride to Circle’s rescue after the USDC stablecoin broke its peg with the dollar following news that $3.3 billion of Circle’s deposits were stranded on failed bank.
According to a person familiar with the scheme, Circle sent instructions to transfer funds last Thursday, but the bank collapsed before the transfer went through. This put Circle in the same position as hundreds of other Silicon Valley Bank customers who spent three agonizing days wondering what would become of their deposits, which were only protected up to $250,000 under FDIC insurance.
Although the stranded $3.3 billion represented less than 10% of Circle’s total reserve deposits, the news prompted panicked investors to sell off USDC, causing the stablecoin to break the peg and trade briefly around the 90-cent mark. Meanwhile, a sleepless Circle team scrambled to find a way to reassure markets that their stablecoin was still worth a penny. The company found a potential lifeline in the hands of Coinbase, its one-time rival that now shares in the leadership — and profits — of USDC.
The person familiar with the scheme said Fortune that Coinbase offered an immediate line of credit to Circle that would have guaranteed full liquidity for USDC reserves, ensuring that the stablecoin could be converted into US dollars on Monday morning after the Silicon Valley Bank’s collapse. The companies were on the verge of announcing the credit facility, but that same Sunday, banking regulators lifted the FDIC, removing the sense of crisis. Circle declined to comment on these incidents, but does not deny them.
We’ll never know for sure if Coinbase’s planned backstop would have had the same effect as the FDIC news — which prompted the USDC to close the link within hours — but the scenario underscores just how good players in the crypto industry had the solidity and maturity to hold on. out of a banking crisis of their own making. Let’s hope that regulators, who have tried to make crypto the villain of the current crisis, appreciate the irony as they fight to save the banks that created this mess in the first place.
Jeff John Roberts
[email protected]
@jeffjohnroberts
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