Coinbase's line of credit to Circle

Details keep emerging about the chaotic weekend that followed the collapse of Silicon Valley Bank—including a plan by Coinbase to ride to the rescue of Circle after the USDC stablecoin broke its peg with the dollar following news that $3.3 billion of Circle’s deposits were stranded at the failed bank.

According to a person familiar with the arrangement, Circle sent instructions to wire out its funds last Thursday, but the bank collapsed before the wire went through. This put Circle in the same position as hundreds of other Silicon Valley Bank customers that spent an agonizing three days wondering what would become of their deposits, which were only protected up to $250,000 under FDIC insurance.

Even though the stranded $3.3 billion amounted to less than 10% of Circle’s overall reserve deposits, the news led panicked investors to sell off USDC, causing the stablecoin to break its peg and briefly trade around the 90-cent mark. Meanwhile, a sleepless Circle team scrambled to find a way to reassure markets that its stablecoin was still worth a buck. The company found a potential lifeline at the hands of Coinbase, its one-time rival that now shares in the management—and the profits—of USDC.

The person privy to the arrangement told Fortune that Coinbase offered an immediate line of credit to Circle that would have guaranteed full liquidity for USDC reserves, and ensured the stablecoin could be converted to U.S. dollars on the Monday morning following Silicon Valley Bank’s collapse. The companies were on the verge of announcing the credit facility but, the same Sunday, banking regulators lifted the FDIC and dispelled the sense of crisis. Circle declined to comment on these events but does not deny them.

We’ll never know for sure if Coinbase’s planned backstop would have had the same effect as the FDIC news—which caused USDC to close the peg within hours—but the scenario underscores how good actors in the crypto industry possessed the solvency and maturity to stave off a banking crisis not of their making. Let’s hope that regulators, who have tried to make crypto the villain in the current crisis, appreciate the irony as they scramble to bail out the banks that created this mess to begin with.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

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