Current SVB situation
Silicon Valley Bank (SVB) recently failed due to a funding crunch that was caused by several factors, such as the rapid interest-rate increases by the US Federal Reserve to tame the highest inflation in decades. As the only publicly traded bank focused on Silicon Valley and new tech ventures, SVB was deeply embedded in the US startup scene, and its deposit base was unusually concentrated in venture-backed startups. SVB’s clients had tapped their deposits to withdraw cash they needed to keep going, and to keep up with the wave of withdrawals, SVB had to sell assets including bonds that had lost a substantial portion of their value. The bank’s funding structure, which had made it particularly vulnerable, also contributed to its distress. Several major venture capitalists were said to have instructed their portfolio businesses to pull their cash from the bank. There are fears of contagion as the situation may lead to the scramble to shore up the funding base if depositors leave other vulnerable lenders.
Liquidity Group, a global asset manager and tech lender, is planning to offer about $3 billion in emergency loans to start-up clients affected by the collapse of Silicon Valley Bank. The group has $1.2 billion in cash available and is in talks with its funding partners, including Mitsubishi UFJ Financial Group and Apollo Global Management, to offer an additional $2 billion in loans. The priority is to help companies meet payroll expenses, and a typical loan will be a one-year facility of $1 million to $10 million, or as much as 30% of the balances held with SVB. The collapse of Silicon Valley Bank is causing concern among startup founders globally.
Relationship between USDC and SVB
USD Coin (USDC) is a stablecoin that is pegged to the value of the US dollar. It is a digital asset that is designed to provide stability and security to its users. SVB Financial Group (SVB) is a bank that offers a wide range of financial services to businesses and entrepreneurs.
The relationship between USDC and SVB is that SVB is one of the main banks that holds reserves for Circle, the company behind the USDC stablecoin. The reserves held by SVB are used to back the USDC stablecoin, meaning that each USDC token is backed by an equivalent amount of USD held in reserve by Circle at its partner banks, including SVB.
SVB’s involvement in USDC is significant because it helps to support the value and stability of the stablecoin. By holding reserves for Circle, SVB helps to ensure that there is sufficient collateral to back the USDC tokens in circulation, providing reassurance to users of the stablecoin that it is a safe and reliable store of value. In addition, SVB’s involvement in USDC helps to provide liquidity to the stablecoin, making it easier for users to buy and sell USDC on various cryptocurrency exchanges and platforms.
It is worth noting that while SVB is a significant bank involved in USDC, it is not the only bank involved. Circle also holds reserves at other banks, and there are multiple other stablecoins that are backed by different banks and financial institutions.
Source:
Bloomberg Business
Bloomberg Business
Bloomberg Business
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