Oh Circle

For all the talk of a crypto crackdown in the US, one of the biggest, if not the actual biggest, beneficiaries of the recent depositor backstop of Silicon Valley Bank was crypto firm Circle.

Circle had held $3bn of the reserves backing its USDC stablecoin at SVB. A reminder that the FDIC insurance limit is $250,000 so Circle — which says it is “leading a more responsible, stable future for crypto” — exceeded that by a mere 12,000 times.

A fortnight on, Circle’s co-founder and chief executive Jeremy Allaire is requesting our attention on the themes of risk management, regulatory oversight, and the systemic value of the technology ecosystem:

6/ I have not seen a situation in the past 10 years where clear, coherent and pragmatic policy is so urgently needed. We are in serious risk of seeing an entire strategic technology arena slip away from US leadership. @congressdotgov @WhiteHouse

— Jeremy Allaire (@jerallaire) March 23, 2023

The weekend of SVB’s collapse, USDC broke the buck. It was only after the US government announced depositor protection for SVB that secondary market prices bungee’d back to a dollar.

Semantics aside, Circle received what was in effect a $3bn bailout backstopped by US taxpayers.

A fortnight on, Allaire has been offering his reflections on probity, transparency and reliability:

8/ USDC has not missed a beat, we have never failed to mint or redeem USDC for $1, including during the past weeks stress test. As of last week, in the past year, we have redeemed $192.4B USDC at $1, and issued $176.9B at $1.

— Jeremy Allaire (@jerallaire) March 23, 2023

Allaire on Thursday delivered the opening keynote at Paris Blockchain Week, in which he held forth on how crypto was invented during the GFC to bypass “the inherent risks with fractional reserve money that had plagued the financial system in booms and busts”.

Here’s a taster:

We have seen today, again, the limitations of this fractional reserve banking system. The collapse of Silicon Valley Bank. The collapse of Credit Suisse. The collapse of First Republic Bank. And a backstop being put in place by central banks around the world as we speak because of all the inherent risk that is embedded in fractional reserve banks today. This is the financial system we are in today, and this is the world over 10 years ago that crypto emerged to respond to.

… right. So presumably, Circle took its bailout windfall out of tradfi and is relying solely on cash equivalents?

Nope. Eighty per cent of USDC reserves are still held in a Blackrock-managed bond fund. As for the rest, Allaire says Circle has been moving “into stronger banking infrastructure”. All cash backing USDC is now deposited “with one of the largest global systemically important banks in the world, one of the lowest credit risk and [with] safest cash instruments in the world. So today, USDC is literally the safest digital dollar on the internet, period.”

A week may be a long time in politics, but a fortnight in crypto can feel like an eternity.