Coinbase, one of the leading cryptocurrency exchanges in the United States, recently extended a $3 billion credit facility to Circle Internet Financial, the issuer of the USDC stablecoin. The emergency credit line was offered to Circle after the collapse of Silicon Valley Bank, which held $3.3 billion of the company’s reserve deposits that backed the USDC stablecoin, the second largest stablecoin in the world.
According to sources familiar with the matter, Circle had instructed the bank to transfer its funds before its collapse, but the bank was seized by the US Federal Deposit Insurance Deposit Corp (FDIC) before the transfer could be completed. This resulted in Circle’s exposure to the bank’s collapse and caused panic among investors, who rushed to pull their funds from the USDC stablecoin, causing it to lose its peg to the US dollar.
In response to the situation, Coinbase stepped in to offer the multi-billion dollar credit line to Circle, ensuring the sufficient liquidity of the USDC stablecoin. It is worth noting that the USDC stablecoin is a joint project of Coinbase and Circle, operated under the CENTRE Consortium.
Fortunately, the USDC stablecoin regained its peg to the US dollar after the FDIC clarified its plan of action for the downed bank, making the multi-billion dollar credit facility unnecessary. Nonetheless, this event has shed light on the importance of stablecoin liquidity and the role of cryptocurrency exchanges in maintaining the stability of the digital asset ecosystem.
