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Circle CEO Jeremy Allaire Warns Contagion Risks Not Completely Gone Following USDC Depeg

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Circle CEO Jeremy Allaire believes that the risks to the banking system haven’t completely disappeared days after the US federal government stepped in to protect depositors of the now-collapsed Silicon Valley Bank.

While praising the actions of the federal government, Allaire says in a new CNBC interview that contagion risks still remain.

“Fortunately again, the path that the federal government took was I think the right path.

As we’ve seen, the risks of contagion, the risks of a broader fallout in the financial system appear to have been systemic.  And I think that President Biden and [U.S. Treasury] Secretary [Janet] Yellen, etc have made a good set of decisions there. I don’t think those risks have dissipated at this point entirely.”

The CEO of the USD Coin (USDC) stablecoin issuer says that Circle is protecting itself by reducing the deposits held in banks.

“The major precautions from our perspective are let’s just make sure that we have as little exposure as possible to embedded risk in the fractional reserve banking system, focus on custodians that really are not significant risk-taking cash custodians.

And then obviously we’ve made this move with daily transparency into the short-term treasury bills in the circle Reserve fund as well.”

The fall of Silicon Valley Bank temporarily caused USDC to de-peg over the weekend amid revelations that Circle held billions in the financial giant.

While alluding to the fact that the fast pace of rate hikes by the Federal Reserve contributed to the fall of Silicon Valley Bank, Allaire says that the collapse came as a surprise.

“I think this also comes back to you know, is the [monetary policy] tightening working? It’s one way to ask, the tightening of rising interest rates. You know, have the policymakers themselves made an error in terms of you know what that’s going to do in terms of the long bond durations that some of these financial institutions hold?”

Silicon Valley Bank reportedly incurred a $1.8 billion loss after selling bonds below their par value.


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