Stablecoin with 40% of its reserves in Signature defies bank crisis fallout

TrueUSD, the fifth largest stablecoin with a market cap of $2 billion, had 40% of its dollar-backed stablecoin’s reserves sitting at Signature Bank, which was shut down by New York state regulators on Sunday.

Yet unlike Circle’s USDC stablecoin, which plunged and then rebounded over the weekend on worries over its exposure to Silicon Valley Bank, TUSD has barely moved at all.

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TrueUSD’s website showed that almost $800 million, or 40% of TUSD’s total bank balances, was in deposits at Signature Bank as of Monday.

But thanks to the intervention of the Federal Reserve and the US Department of the Treasury, TrueUSD, along with Signature’s other depositors, don’t have to worry about losing their money. The government guaranteed their assets will be safe and accessible.

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The development demonstrates how an industry predicated on replacing central banks, commercial banks, and the other pillars of the traditional financial system are being saved by those very same institutions amid the worst crisis in confidence to strike the US since the crash of 2008.

It also shows that the champions of decentralised finance remain dependent on old-fashioned banks to move assets between the fiat and crypto domains. With crypto investors and founders nervous the banking crisis may intensify Washington’s crackdown on their industry, the decentralised finance story is entering a crucial phase.

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And one of the biggest worries is losing access to banks like Signature.

Based in New York, the 22-year-old lender with total assets of $110 billion at the end of 2022 and catered to cryptocurrency enterprises. It was one of the few banks comfortable with the risky nature of crypto clients and when Silvergate, a California institution that also banked crypto firms, went sideways this month it was only a matter of time before short sellers started targeting Signature.

The downfall of Silicon Valley Bank last week made Signature a target for regulators.

“The US Government announced the closure and backstopping of Signature Bank,” TrueUSD said in a statement on Monday. “As a result, TrueCoin paused TUSD minting & redemption for our small number of Signature Bank users. Minting & redemption continues unaffected across the rest of our banking network.”

The downfall of Silicon Valley Bank last week made Signature a target for regulators.

While TrueUSD traded close to the $1 mark over the weekend, Circle’s widely used USDC stablecoin plunged to 88 cents on Saturday, as did MakerDAO’s DAI token, before both quickly recovered. The moves raised concerns about the interdependency of stablecoins and TradFi banks.

Signature said at the end of last year that about 20% of its deposits are from the crypto industry, and the bank was keen on reducing that portion after FTX, the second largest crypto exchange, went bankrupt in November.

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TrueUSD is issued by a platform called TrustToken, which announced last year that it sold the rights to its stablecoin to an Asia-based conglomerate called Techteryx. TrustToken said at the time that it would continue to be involved in running TUSD.

On Monday afternoon, TUSD updated the label for Signature to “Signet.” Signet is Signature Bank’s blockchain-enabled payments platform and is popular with its institutional clients. Signet will continue to operate after Signature Bank’s shutdown, according to a report.