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Three senior executives at stablecoin issuer, Circle, published a paper outlining a Token Capital Adequacy Framework (TCAF), inspired by the Basel Committee rules for banks. One of the most interesting aspects of the paper is the conclusion that the USDC stablecoin would not have suffered the Silicon Valley Bank (SVB) de-peg event had it followed TCAF guidelines.

A key part of the recommendations is a purely risk-based focus, so the TCAF model uses the concept of Value at Risk. A simplification of the approach is how much money could be lost and what is the confidence level of that happening?

In March 2023 when there was a run on Silicon Valley Bank, Circle had $3.3 billion of its $40 billion reserves at SVB. Another $1 billion was at Customers Bank and $5.4 billion at BNY Mellon.

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