Investors Shore Up Stablecoins as Silvergate Exodus Worsens

Sidhartha Shukla, Bloomberg News

(Bloomberg) -- Investors are shoring up the circulation of stablecoins even as the broader crypto market weathers a downturn, turning to dollar-equivalent tokens as a substitute for cash following the unraveling of crypto-friendly bank Silvergate Capital Corp.

The sector’s two largest stablecoins by market value, Tether’s USDT and Circle’s USDC, showed an uptick in activity during morning hours in India on Friday. The 24-hour trading volume for USDT stood at $43.2 billion on March 3, compared with $39.9 billion for the whole of the previous day, while USDC volumes jumped to $4 billion from $3.4 billion, according to pricing data from CoinGecko.

Stablecoins are digital tokens that aim to keep a one-to-one value with a less volatile asset, typically the US dollar. Most do this by maintaining hefty reserves of collateral made up of cash and cash-equivalents, which means that theoretically, investors can always cash out their stablecoins for dollars at crypto exchanges or directly with the token issuer.

The market capitalizations of USDT and USDC, which indicate how many tokens are in circulation, also increased by $22 million and $589 million respectively in the same period, the data showed.

“We have seen an increase in stablecoin activity as a sign that crypto firms are using crypto rails to move money around,” said Markus Thielen, head of research at Matrixport. He said the increased activity indicates that crypto traders are reluctant to clear through Silvergate’s Exchange Network, commonly referred to as SEN, and so may be turning to digital assets as a replacement for traditional finance.

US-based Silvergate Capital Corp. said on Wednesday that its auditors require more time to review the firm’s status as a “going concern,” an announcement that caused its share price to hit a record low on Thursday. The bank’s SEN is one of the few places in the US that can facilitate the real-time transfer of cash between crypto firms, but as of Thursday, many digital-asset exchanges, stablecoin issuers and trading desks are no longer accepting or initiating payments through Silvergate.

Stablecoin reserves on exchanges were also increasing during the same period on Friday, further intraday data from CryptoQuant showed. Reserves of stablecoins increased by 120 million tokens across exchanges broadly on March 3 compared with the previous day, indicating traders and firms are storing more of their dollars in digital assets on exchanges as a safe haven during the turmoil.

--With assistance from Emily Nicolle.