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Coinbase Offered Circle $3.3 Billion to Restore USDC Peg After SVB Collapse, Says Report

3 mins
Updated by Michael Washburn
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In Brief

  • Coinbase reportedly was in talks to backstop USDC liquidity after Circle failed to remove $3.3 billion from Silicon Valley Bank.
  • The U.S. exchange reportedly was prepared to offer Circle a $3.3 billion instant credit line to help restore USDC's peg.
  • Armstrong said on a previous occasion that it was in Coinbase's interest to support USDC.
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Coinbase reportedly prepared a $3.3 billion USDC rescue package for Circle after the failure of Silicon Valley Bank prevented money from leaving Circle’s account.

The exchange offered to step in after Circle failed to wire funds out of Silicon Valley Bank, sparking a selloff that caused USDC to lose its dollar peg.

Coinbase Offered Circle a $3.3 Billion Instant Credit Line

A source told Fortune that Coinbase was prepared to offer Circle an instantaneous credit line to backstop USDC’s liquidity. By March 13, 2023, users would have had access to funds had the Federal Deposit Insurance Corporation not stepped in to back up SBV deposits on March 12, 2023.

Silicon Valley Bank raised capital on March 8, 2023, to boost liquidity amid a withdrawal surge after the collapse of Silvergate. The following morning, the bank’s share price had fallen about 60%. At 10:11 p.m. ET on March 10, 2023, Circle tweeted that it unsuccessfully tried to pull its reserves through a wire transfer from the bank on March 9, 2023.

Circle’s chief strategy officer, Dante Disparte, said the team worked diligently to protect USDC. His tweet may have come around the time negotiations with Coinbase started. Coinbase and Circle couldn’t announce the deal after FDIC announced it would honor all SVB withdrawal requests.

After the collapse of crypto broker Voyager Digital in July 2022, former FTX CEO Sam Bankman-Fried stepped in to offer money to ailing crypto firms. Mainstream media labeled him as crypto’s lender of last resort, akin to a role JPMorgan played in the TradFi sector. However, some questioned whether the former billionaire was quite as altruistic as everyone assumed.

New Report Suggests Coinbase Eyes Offshore Expansion

Today’s Bloomberg report revealed that Coinbase could set up an offshore unit as U.S. regulatory scrutiny of the industry intensifies. Bloomberg revealed that global transactions would likely be routed through the new facility. Presently, Coinbase routes all transactions through the main Coinbase marketplace.

While the exchange has not confirmed the report, its chief operating officer, Emilie Choi, said on an earnings call that “international expansion is going to continue to be a very core part of how we operate.” Choi lauded recent regulatory developments in Europe and the U.K. and said Coinbase will continue to invest in those jurisdictions. 

Coinbase recently praised the U.K. for launching consultations on a new future financial services regulatory regime for crypto assets.

U.K. Crypto Regulation
U.K.’s Phased Regulation Approach | Source: U.K. Government

The European Parliament will debate Europe’s Markets-in-Crypto Assets (MiCA) Bill, which spans the European Union’s 27 member states, on April 18, 2023.

Coinbase Was Likely Poised to Act in its Own Interest

Coinbase’s intended backstop of Circle also raises questions over whether it acted in its own best interest. By the admission of Coinbase CEO Brian Armstrong, the exchange has a vested interest in seeing USDC succeed. 

In December last year, Coinbase offered customers the option to convert their USDT stablecoins, issued by Tether, into USDC. This offer came amid market turmoil caused by the collapse of FTX.

Armstrong emphasized that the move was not intended as a comment on Tether, but, rather, reflected the incentive that Coinbase had to grow USDC.

“It’s just that we happen to have co-created USDC along with Circle and we have an economic interest in seeing that growth, and so we want to encourage people to use USDC,” Armstrong told the Wall Street Journal.

The U.S. exchange partnered with Circle to develop USDC through the CENTRE Consortium in 2018. It earns interest from the reserves Circle uses to back USDC.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...