- USDC price dropped significantly following the fall of Silicon Valley Bank (SIVB).
- The USDC stablecoin had a $3.3 billion exposure to the collapsed bank.
- Circle engaged in a series of burns and minting of new tokens to stabilize the crypto.
The blockchain data and research platform, Nansen, tweeted that Circle’s USDC stablecoin recovered to about $0.97 after a token burn process. The stablecoin’s price dropped significantly following the fall of Silicon Valley Bank (SIVB). Hence, the issuing company, Circle, engaged in a series of burns and minting of new tokens to stabilize the crypto.
According to Nansen, Circle burned $649.3 million in USDC and minted $16.7 million within 24 hours. That was after burning $2.34 million USDC and minting $366 million the previous day. The exercise helped the USDC price to recover, having fallen sharply to $0.88 earlier in the day.
USDC became one of the immediate casualties of the SIVB fallout after sources revealed that it had a $3.3 billion exposure to the collapsed bank. The impact of this meant that the stablecoin lost its dollar peg, leading to an immediate price crash.
In the wake of the crash, Circle reassured the public it would continue to operate standard services while waiting for clarity on how the FDIC receivership of SVB will affect its depositors. Hence, the burning and minting process embarked on by Circle is in line with measures to deliver standard services to its customers.
Stablecoins burn tokens to maintain their dollar-pegged value during unusual market behaviors. The need to burn stablecoins arises from increased demand that causes prices to fall. Under such scenarios, a smart contract will burn coins to drive the price and release new tokens to balance the market price.
The burning process involves sending tokens to a one-way wallet that can only receive them. That permanently removes such tokens from available supply, thereby decreasing the number in circulation.
Circle’s USDC price has always revolved around $1, making the crash to $0.88 unprecedented. The lowest it has ever dropped to is $0.97 in 2018. Last year, even in the heat of the Three Arrows Capital collapse, USDC fell just below $0.99.
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