Binance Suspend USDC Conversions as Dollar Peg Wobbles
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Binance Suspend USDC Conversions as Dollar Peg Wobbles

written by John Murphy | March 11, 2023

Two major cryptocurrency exchanges, Coinbase and Binance, have temporarily suspended conversions between US dollars and the USDC stablecoin following a sudden drop in the stablecoin’s value. The USDC token is designed to maintain a 1:1 peg with the US dollar, but market fluctuations reportedly caused the token’s value to waver on Monday and Tuesday.

Major cryptocurrency exchanges Binance and Coinbase have both announced that they will temporarily suspend USDC exchanges as the effects of the Silicon Valley bank collapse continue. 

The action comes amid concerns that Circle, the company behind the USDC stablecoin, held a portion of USDC’s cash reserves at a Silicon Valley bank shut down by California financial regulators on Friday. (USDC was created by Center, a joint venture of Coinbase and Circle)  

Binance said it had temporarily suspended the automatic conversion of USDC to BUSD, citing “current market conditions” without naming any Silicon Valley banks. 

Following Binance’s announcement, Coinbase, the largest U.S. cryptocurrency exchange, has also announced that it will suspend USDC to USD conversions while banks are closed over the weekend.  

Without specifically citing Silicon Valley banks, Coinbase said,

“During periods of high activity, the conversion will rely on transfers of US dollars from banks and will be processed during normal bank business hours.”

He added that the conversion would resume on Monday when banks reopen. 

Coinbase cited “issues with the USDC stablecoin” in its suspension announcement, which affects both withdrawals and deposits of USDC. Binance also issued a statement confirming the suspension of USDC conversions until further notice. The company explained that the move was taken

“in response to a temporary deviation in the USDC market price from its peg to the US dollar.”

USDC is one of several stablecoins on the market designed to provide cryptocurrency traders with a stable store of value amid the tumult of the crypto markets. Stablecoins are typically backed by fiat currency or other assets to ensure predictable and consistent pricing for users.

The USDC token is managed by the Centre Consortium, a partnership between Coinbase and Circle. In a statement issued on Tuesday, Centre said it was “actively working” to address the issues with UDC’s peg and ensure that the token would remain stable.

The suspension of USDC conversions could have implications for traders and investors who rely on cryptocurrency as a hedge against volatility in other crypto assets. In particular, the move could limit users’ ability to quickly convert volatile assets like Bitcoin or Ethereum into a more stable store of value.

The news also comes amid a broader push for increased regulatory scrutiny of stablecoins and their issuers. Earlier this year, the US Treasury Department issued a report outlining potential risks associated with stablecoins, including concerns about money laundering, terrorist financing, and consumer protection.

Despite these challenges, stablecoins have continued to gain traction in the crypto world, with many traders and investors relying on them as a key tool for managing risk and uncertainty. The USDC token remains one of the most popular stablecoins on the market, with a market cap of over $4 billion at the time of writing.