Recently the global stablecoin volumes hit $1 Trillion. Today, that has changed with the de-peg of USDC(now at $0.91). This reminds us all about UST, which erased over $64 Billion in wealth. The USDC’s peer, the USDT, has momentarily benefitted from its collapse, which is now trading at $1.02 (2:30 PM UTC).
USDC got de-pegged at 04:30 AM UTC on 11 March 2023. Now at 2:30 PM UTC, it is quoting $0.91, a dep-peg of nearly 10%.
Volume has increased more than 3.5 times to $24.3 Billion in the last 24 hours, which shows that users are continuing with heavy withdrawals.
Its peer USDT has never de-pegged to this level. Its lowest point was achieved at $0.87, from which it has recovered slightly. The lowest point for USDT was $0.9485 on May 12, 2022, during Terra LUNA collapse.
Reason for the USDC De-peg
USDC had over $40 Billion in reserves to maintain its peg with the USDC. A major chunk of those reserves, amounting to $3.3 Billion, was in the now-collapsed Silicon Valley Bank(SVB). It became the largest bank to collapse since the 2008 Global Financial Crisis.
The California Department of Financial Protection and Innovation put a hold on the operations of SVB, a major bank that had assets worth $175 Billion under its management. The assets were moved under the custody of the Federal Deposit Insurance Corporation. The regulatory action was inspired by the doubt that SVB might not have sufficient cash to manage operations.
Circle confirmed just 11 hours ago that they had $3.3 Billion stuck in the now-collapsed bank.
1/ 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.
— Circle (@circle) March 11, 2023
Earlier, Circle had reportedly moved a certain undisclosed percentage of their funds into a “new-banking partner” from Silvergate Capital, which shut down its bank last week.
Future of USDC
Currently, the future of USDC depends on how much capital was actually lost at Silicon Valley Bank. As of now, the USDC has de-pegged by the same 9-10% percentage, the amount by which is stuck at SVB(under FDIC), i.e., $3.3 Billion out of $40 Billion.
Circle has urged the authorities to continue the operations of the SVB bank through a tweet.
2/ 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.
— Circle (@circle) March 11, 2023
Though it is unlikely that the total amount will collapse, the current situation will be resolved when authorities at the FDIC will release funds held by them.
Future of the Stablecoin Ecosystem
Stablecoins are mostly used for storing values that do not fluctuate. Mostly considered a risk-proof asset. However, stablecoins also face systemic risks, such as the current run-on-bank for USDC.
Just one year back, there were three highly competitive stablecoins, USDT, USDC, and UST. The Terra LUNA collapse ended the UST, while the current loss of reserves puts the future of USDC at risk. Only the USDT seems to have survived a de-peg situation.
It would be interesting to see in the future if the stablecoins will remain in the market or if these types of situations will pave the way for Central Bank Digital Currencies(CBDCs).
Impact on USDT
USDT has temporarily gained benefits as the coin trades at a 2% premium.
However, USDT also comes under scanner because being the closest(bigger) rival of USDC. Earlier, USDT reserves also came under scanner due to its de-peg during the Terra collapse.
Such situations might favor the adoption of the dollar CBDC once it is released.
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