USDC DePegs Amid Silicon Valley Bank Crash
The wall surrounding Crypto stablecoins are collapsing with USDC and other major stables like DIA losing its 1:1 pegs against the US dollar. USDC stablecoin is issued by Circle with support from Crypto exchange, Coinbase just like what Binance had with Paxos in the past.
Despite the USDC depeg, $3.3B of assets may still have a potential 94% payout, 75% and more of assets are in Short-Dated US Treasury Portfolios. The USDC depeg was precipitated by the crash of Silicon Valley Bank [SBV] in which Circle has chunk of reserves on.
Financial risk management in the past year:
BTC/ETH too volatile —> USDT
USDT too risky —> UST
UST death spiral —> $ in the bank
Bank insolvent —> USDC
USDC depeg —> —
Circle, the issuer of USDC wrote;
Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB. Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow guidance provided by state and Federal regulators.
This situation will have a long term impact on USDC even if/after peg recovers, since circle has proven unable to defend the peg. What defi protocol wants to rely on a stablecoin that can depeg >10%. Who wants to hold that?
Even if USDC repegs after a few days,
- who wants a stablecoin that you can’t use to buy dips because it depegged.
- who will use it in defi when you can get liquidated because of depegs.
- who wants to risk being forced to baghold it when you want to use it during market stress.
For a stablecoin being always pegged is literally the point of it and what makes it usable, thus if Circle wants ppl to use it they should defend the peg, or risk losing adoption, usability and trust.
As long as circle can continue to redeem at 1 USD the system is working as designed and will level back out. It really depends on if they are liquid enough to make it through the panick, though I would imagine they can take some loans if necessary as well.
FUD on almost all stables due to depeg of $USDC currently trading at $0.89 at the time of writing. Its okay to be afraid, but one thing you should know is that a lot of things happens in this space, Be ready for anything at anytime. For now I suggest you swap all your stables to #Bitcoin to avoid getting hurt even if anything happens. I believe in the future of Decentralization and i hope everything will be okay overtime.
However, Czsamsunsb.eth is playing a big chess game on $USDC depeg; Borrow $USDT from Aave with $ETH then he converted 27.325M $USDT to 28.658 $USDC, Borrow $USDC from AAVE then converted 113.466M $USDC to $DAI. If $USDC goes 0, he made $113M from 28.658M and if $USDC is back $1, he will make $1.3M.
Following the degrading situation around USDC peg, Coinbase has announced temporary closure on USDC:USD conversion; Coinbase wrote on Twitter; “We are temporarily pausing USDC:USD conversions over the weekend while banks are closed. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions.”
Circle can just buyback all the USDC sold in the weekend for $0.90 and bring home a healthy 7% or 10% profit. If panic spreads in the next 48 hours they might even end up with an amount more than enough to cover any 10% or 15% haircut from SVB.
Actually, Circle can make tons of money by simultaneously doing the following: A) delay with various excuses USDC->USD conversions for a few days, B) scoop all discounted USDC in market prices from panicking sellers. The discounts can be even more than 10%, George Mastrokoukos noted.
I think the $USDC depeg situation is just going to get worse and worse till Monday, as per fud, people are swapping USDC in panic for a -20% loss, these are the ones that bought $BTC at the top last cycle.
Right now Sillicon Valley Bank is under FDIC control. Is a federal bank status at this point. All staff including call-centres are under FDIC control full. They are covering all deposits of 250,000$ like normal operations starting Monday at first hour. But for those over 250,000$ they will have to wait for the liquidation of the SVB then will be handled by probably 0.xx$/ per dollar at the end. So they will still go into liquidation mode, Spawny.btc noted.
One way for the Fed to save small banks if these are even at risk would be to decrease interest rates. Probable consequence is that it’ll lead the Euro to increase over the Dollar in the coming weeks.