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Coinbase Offers $3 Billion Backstop to Circle following USDC Depegging Fiasco

Coinbase reportedly offered a $3 billion emergency line of credit to Circle, the crypto company that issues the second-largest stablecoin in the world, USD Coin (USDC), after the stablecoin lost its peg to the U.S. dollar. This move came after Circle disclosed a $3.3 billion exposure to Silicon Valley Bank not long after the financial institution was taken over by the Federal Deposit Insurance Corporation (FDIC), prompting a sense of trouble among investors who began to withdraw their funds from the stablecoin.

USDC Depegging Event

As a direct consequence of the banking issue, USDC depegged from the US dollar, and for a short period of time, the stablecoin traded at a price lower than 90 cents. Circle requested an emergency credit line in order to secure the continued stability of USDC, which Coinbase provided, covering the entire liquidity for USDC reserves and assuring the stablecoin could be converted to US dollars on Monday morning following Silicon Valley Bank’s failure. However, the banking authorities lifted the FDIC and alleviated the sense of trouble, leading to the credit facility being put on hold.

Current USDC Status

Currently, the price of USDC is exchanging hands at its $1 peg with a market cap of $35 billion, indicating that the stablecoin has regained stability. As more information about the tragic weekend of the USDC depeg continues to surface, it remains to be seen whether similar events could happen in the future and how companies and regulators would respond to prevent similar outcomes.