Circle moves its USDC reserve deposits out of troubled Silvergate Bank

Silvergate bank in a filing on Wednesday said losses might leave it with less capital than it needs.
The bank recently closed its SEN Platform which institutions used to move money to crypto exchanges.
Coinbase, Galaxy, and Paxos have stopped accepting transfers via Silvergate Network.

USDC stablecoin issuer Circle has today announced that it has moved its USDC reserve deposits out of Silvergate Bank to other banks as the bank’s woes deepen.

In the press statement, Circle said that it had made the decision to move the small percentage of USDC it held in Silvergate because of the ongoing uncertainty at the bank. On Wednesday, Silvergate set off alarms with a filing that said losses might leave the bank with less capital than it needs, and that it was evaluating its ability to continue.  The bank also suspended preferred stock dividends.

The bank’s shares immediately started to plummet following the turn of events and key partners including Paxos Trust Co., Coinbase Global Inc., and Galaxy Digital Holdings Ltd. Cut off ties with the bank. Other crypto firms also decided to stop accepting of making payments through Silvergate.

The huge exodus of partners threatens the bank’s key source of deposits seeing that it was a major cryptocurrency player in the US.

Protecting reserve funds

In the press statement, Circle noted that its top priority is protecting the reserve funds backing USDC even if it meant cutting off ties with Silvergate Bank.

Interestingly, Circle started withdrawing its USDC deposits from Silvergate last year as signs of trouble and broader crypto asset risk exposure became increasingly visible on Silvergatee’s end.

Circle has maintained that its USDC reserves are held in the Circle Reserve Fund and several well-capitalized US banks. The Circle Reserve Fund holds 80% of the USDC reserves. The reserves are reviewed on a monthly basis by Deloitte, a leading audit firm.