Stablecoin issuer Circle is experiencing a significant redemption of its USD Coin (USDC). Customers redeemed $738.6 million on March 20, while the firm issued less than $9 million of the token on the Ethereum blockchain. The trend continued even after Circle recouped its deposits that were caught up in the collapse of Silicon Valley Bank, with USDC users dumping $5.76 billion on Ethereum since March 13, while Circle issued only $874 million.
Reasons for the Redemption
The recent market rally may have caused the redemption, with traders typically keeping funds in stablecoins during downturns and then converting them into other cryptocurrencies when prices rise. Jacob Joseph, an analyst at CryptoCompare, suggests that the recent concerns about the closure of banking partners may have led users to Tether and other stablecoins over USDC.
USDC Dumping Visible on DeFi Apps
The dumping of USDC is also visible on decentralized-finance apps such as Curve, where the liquidity pool that is supposed to hold roughly equal balances of USDC, USDT, and DAI stablecoins has been out of balance since Circle’s troubles began. USDT’s portion has continued to be tiny, currently standing at about 9%, meaning that Tether is in demand while traders are exiting other stablecoins.
Circle’s troubles began after Silicon Valley Bank shut down, where the stablecoin issuer kept $3.3 billion of its reserves. For about 36 hours, USDC depegged and dropped as low as 85 cents. Circle has since regained the peg after moving its reserves to new banking partners on March 13. However, Circle has been impacted in the latest rally disproportionately.
While USDC’s market capitalization has shrunk 17%, to $35.3 billion since the beginning of March, Tether’s has risen by more than $6 billion. Circle officials did not respond to requests for comment on the redemptions. Circle CEO Jeremy Allaire confirmed that all of the cash held as a reserve for USDC is now with Bank of New York Mellon Corp in an interview with Bloomberg News last week.