Circle Burns About $650 Million and Recovers from an Iconic Crash

ByGavin Cole

Mar 12, 2023

Circle’s USDC stablecoin has recovered to roughly $0.97 after a token burn operation, according to blockchain analytics and research company Nansen, after seeing a large decline in value due to the collapse of Silicon Valley Bank. Circle participated in token-burning and minting operations to stabilize the coin. These steps were done to compensate for the large price decline caused by the bank’s liquidation.

Circle’s million-dollar burn

Circle’s recent activity in the cryptocurrency market saw the burning of $649.3 million in USDC and the generation of $16.7 million in just 24 hours, as reported by Nansen. The move followed Circle’s expenditure of $2.34 million USDC and the minting of $366 million the previous day. The resulting demand increase helped restore the USDC price after it dropped to a low of $0.88 earlier that same day.

In the aftermath of Silicon Valley Bank’s collapse, Circle found itself among the casualties due to reports that USDC had been exposed to the bank to $3.3 billion. The exposure ultimately resulted in the loss of the dollar-pegged stablecoin’s peg, causing an abrupt and significant drop in value.

After the crisis, Circle promised the public that it would continue to provide regular services while it awaited clarification on how the FDIC receivership of SVB would affect its depositors. As a result, Circle’s burning and minting procedure is consistent with its efforts to provide standard services to its clients.

Stablecoin burns for market balance

During the abnormal market activity, stablecoins burn tokens to retain their dollar-pegged value. Stablecoins must be burned due to growing demand, which causes prices to decline. In such cases, a smart contract would burn coins to push the price up and issue fresh tokens to balance the market price.

One-way wallets designed only to accept tokens are utilized for burning tokens. This action permanently eliminates the tokens from circulation, ultimately reducing the cryptocurrency’s overall supply.

Circle’s USDC has been stable at $1, making the sudden decrease to $0.88 a unique occurrence. Before, the cryptocurrency had only gone as low as $0.97 in 2018. Despite the failure of Three Arrows Capital last year, USDC remained surprisingly steady, with its value falling just below $0.99.

Moreover, stablecoins such as USDC are important in the growth and acceptance of cryptocurrencies since they provide a less volatile alternative to famous cryptocurrencies such as Bitcoin. Yet, occurrences like the recent failure of Silicon Valley Bank raise worries about the dependability of stablecoins and their issuers. The event highlights the need for increased openness and supervision in the crypto space.

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