It often comes tricky how real and crypto/blockchain worlds are interconnected! As if the announced bankruptcy of the largest crypto lender, bank Silvergate, wasn’t enough, last week’s investors’ confidence was violently shaken by the news of the second-largest bank run in the history of the U.S., and its implications spread far away from just the venture capital industry. SVB's collapse has profoundly impacted the tech industry as well, as several companies revealed their current exposure to the ill-fated California bank, including Circle, Pantera, Avalanche, and bankrupt crypto firm BlockFi.

The trading price of USDC, which is designed to remain pegged at $1, went into freefall Friday night, dropping from $1.00 to $0.93. The last time USDC saw these levels was in May 2019, when the stablecoin saw an all-time low of $0.89.

As a result, Binance had temporarily suspended auto-conversion of USDC to BUSD “due to current market conditions, specifically related to high inflows & the increasing burden to support the conversion”. Following Binance’s announcement, Coinbase (COIN), the largest cryptocurrency exchange in the U.S., also said it would suspend USDC conversion to USD while banks had been closed over the weekend.

Coinbase wrote in its Twitter: “We are temporarily pausing USDC:USD conversions over the weekend while banks are closed. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions.”

The actions came amid concerns that Circle, the company behind USDC stablecoin, held some of USDC's cash reserves at Silicon Valley Bank, which was shut down Friday by California's financial regulator. (USDC was originally launched by Centre, a joint venture between Coinbase and Circle).

Indeed, late on Friday night, Circle disclosed that $3.3 billion worth of the cash backing USDC remains locked in Silicon Valley Bank. The company admitted Silicon Valley Bank was one of six banks Circle used for managing 25% of USDC reserves.

“Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow the guidance provided by state and Federal regulators,” Circle tweeted.

The grim situation must be contained as quickly as possible, otherwise it may become infectious, can affect other stablecoins and prompt the U.S. financial regulators to double down their efforts on further severing stablecoins control and compliance procedures.