Circle USDC stablecoin redemptions rise to about $6 billion

Traders typically keep funds in stablecoins during downturns, and then convert them into other cryptocurrencies when prices rise. PHOTO: REUTERS

NEW YORK – Customers are continuing to redeem Circle’s USD Coin (USDC) stablecoin at a greater pace than buying it even after the company recouped deposits that were caught up in the collapse of Silicon Valley Bank (SVB).

On Monday, users redeemed US$738.6 million (S$992.2 million) USDC, while Circle issued less than US$9 million of the token on the Ethereum blockchain, according to researcher CryptoCompare.

On Sunday, customers redeemed US$23.3 million as Circle issued US$231 million on the network, data shows.

Since the beginning of March, Circle has burned about US$12.2 billion USDC, while issuing about half as much on Ethereum, CryptoCompare found.

Circle officials did not respond to a request for comment on redemptions.

Circle’s troubles began after the shutdown of SVB, where the stablecoin issuer kept US$3.3 billion of its reserves. The money is supposed to back USDC 1:1 with the dollar.

For about 36 hours, USDC depegged and dropped as low as 85 cents.

The coin has regained its peg since Circle got the money out and transferred it to new banking partners on March 13.

But USDC users have continued to dump USDC.

Since March 13, investors redeemed US$5.76 billion of USDC on Ethereum, while Circle has issued about US$874 million of the stablecoin, per CryptoCompare data.

Part of the reason may have been the recent market rally.

Traders typically keep funds in stablecoins during downturns, and then convert them into other cryptocurrencies when prices rise.

Still, Circle has been impacted in the latest rally disproportionately.

While USDC’s market capitalisation has shrunk 17 per cent, to US$35.3 billion since the beginning of March, its biggest rival Tether’s rose by more than US$6 billion.

Much of Tether’s – or USDT as it is traded – increase came in the last week, after the SVB situation was resolved and the markets rallied, with Bitcoin gaining about 14 per cent since last Tuesday.   

USDC dumping is also visible on decentralised finance apps, which let users trade, lend and borrow coins without intermediaries.

On an exchange known as Curve, its so-called 3pool continues to be out of balance. The liquidity pool is supposed to hold roughly equal balances of USDC, USDT and MakerDao’s DAI stablecoins.

But since Circle’s troubles began, USDT’s portion has continued to be tiny, currently standing at about 9 per cent, meaning that Tether is in demand while traders are exiting the other stablecoins.

Curve pools take time to return into balance, however, said Mr Henry Elder, head of decentralised finance at Wave Digital Assets.

CryptoCompare analyst Jacob Joseph said: “The recent concerns around the closure of banking partners looks to have led users to USDT and other stablecoins over USDC.”

Circle chief executive Jeremy Allaire said last week that all the cash held as reserve for USDC is now with Bank of New York Mellon. BLOOMBERG

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