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The shutdown of two federally-insured members of the Federal Reserve System – Silicon Valley Bank and Silvergate Bank – is causing ripple effects in the crypto ecosystem with many now looking at how these two events will impact Circle, the payment services company that operates stablecoin USDC.

As the crypto-adjacent banks are shutting down, some in the crypto space have highlighted how a significant portion of USDC reserves are stuck in cash in Reserve Banks. Deloitte’s accountant report of Circle, published on March 2, indicated that Circle held cash with the following banks as of Jan. 2023: Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank, a division of Flagstar Bank, N.A., Signature Bank, Silicon Valley Bank and Silvergate Bank.

According to Circle’s transparency page, $43.1 billion USDC is in circulation with $43.2 billion in reserves. $11.4 billion, or 26% of all USDC reserves, are held in the form of cash at Reserve Banks such as Silicon Valley and Silvergate.

Circle has since moved some of its USDC reserve deposits out of Silvergate and into other banking partners, as stated in a company update on March 4, but Circle hasn’t been the only one adjusting to the shutdowns of two members of the Federal Reserve System.

USDC is the token in the past 24 hours with the largest negative net flows from centralized exchanges among three parties: All smart money wallets, all funds & market makers and all wallets, according to on-chain data from blockchain analytics firm Nansen.

Nansen considers a wallet to be “smart money” if it meets at least one of several criteria such as making more than $100,000 by being a liquidity provider/miner on Uniswap and making multiple profitable trades on a decentralized exchange (DEX) in a single transaction, through mechanisms called flash loans.

In the past 24 hours, all smart money wallets had an outflow of $68 million in USDC from centralized exchanges. Nansen-labeled funds and market maker addresses, which include Genesis Trading, Wintermute and Jump Trading, withdrew $79 million. All wallets had an overall outflow of roughly $902 million from centralized exchanges.

In the past seven days, $3 billion in USDC has been withdrawn from centralized exchanges as of press time.

Charles Storry, head of growth at crypto index platform Phuture, said in a private Telegram message to CoinDesk that “people are preparing for a worse case scenario,” noting that “people are moving into more trustless [stable] assets.”

Per Nansen, wallets with the highest balance of USDC belong to Binance, MakerDAO, Arbitrum, Polygon, Crypto.com, Voyager, Aave, Optimism, dYdX and Compound, demonstrating how large entities in the crypto space depend on USDC to hold value.