Sunday, federal regulators said that Silicon Valley Bank depositors would get their cash back to seemingly solve Circle Internet Financial’s problem with its $3.3 billion reserves. However, Circle’s USDC stablecoin still faces challenges.
Signature Bank, a critical financial institution to the crypto industry and specifically to USDC, has been closed by New York state officials to protect depositors. This marks the third crypto-friendly bank to go dark in just four days. Circle CEO Jeremy Allaire took to Twitter to acknowledge that this development means the company can no longer mint or redeem USDC through Signature’s Signet product.
With the closure of Signature bank announced tonight, we will not be able to process minting and redemption through SigNet, we will be relying on settlements through BNY Mellon.
— Jeremy Allaire (@jerallaire) March 12, 2023
The sudden failure of Signature Bank has left the crypto industry’s backend infrastructure, Signet, in limbo. Signet is a 24/7 blockchain-based real-time payment system used by several crypto trading firms, including Circle and Coinbase. However, with Signature’s demise, Signet has also gone kaput. Signet officials contacted on Sunday were uncertain about its fate but expected to learn more soon.
Circle CEO Jeremy Allaire tweeted that the company would be bringing on a new transaction banking partner to automate minting and redemption as soon as the next day. The fate of Signet is crucial for Coinbase, as well. In its third-quarter shareholder letter, Coinbase stated it had joined Signet to enable real-time payments and settlements.
Additionally, we will be bringing on a new transaction banking partner with automated minting and redemption potentially as soon as tomorrow.
We are committed to building robust and automated USDC settlement and reserve operations with the highest quality and transparency.
— Jeremy Allaire (@jerallaire) March 12, 2023
Coinbase paused redemptions between U.S. dollars and USDC late Friday and resumed Monday when regular banking hours resumed. USDC had lost its peg to the U.S. dollar amid uncertainty about how much of its funds were held in SVB, where Circle held $3.3 billion, or about 8% of the funds backing USDC.
Circle spokesperson stated that it has no USDC reserves with Signature Bank. At the time of press, USDC is trading at around $0.99, nearing its peg to the dollar.
