- The price of USDC fell to US$.0.8832 as of March 11, 2023,10:55 EAT, with the trade volume standing at US$19.48 billion
- The crypto market is destabilizing as USDC, the second most popular stablecoin after Tether (USDT), depegs from the dollar
- Ultimately, if traders lose trust in stablecoins, the crypto market will lose a significant number of traders and investors
The crypto market is destabilizing as USDC, the second most popular stablecoin after Tether (USDT), depegs from the dollar. Many cryptocurrency traders have relied on holding stablecoins as they are not as volatile. However, The recent showdowns (UST and USDC de-pegging) have proven that stablecoins are not stable at all.
What is a stablecoin de-peg
Theoretically, as a stablecoin, One USDC is supposed to have the value of one dollar, always. However, the price of USDC fell to US$.0.8832 as of March 11, 2023,10:55 EAT, with the trade volume standing at US$19.48 billion. In the last 24 hours, the trade volume has reduced by over US$10 billion, showing the low fear-to-greed index that comes with the de-pegging.
Usually, stablecoins are used as a cryptocurrency’s store of value. For example, if you have BTC and do not want to keep them in the market, you convert them to a stablecoin to ensure that your value remains the same, with respect to the dollar.
Why USDC is de-pegging
Circle, the company that provides the USDC coin was storing 10 per cent of their total supply in the Silicon Valley bank, one the largest banks in the world. The bank, however, is going down due to the high interest rates in the United States. Most depositors in Silicon Valley have been withdrawing money draining the bank’s coffers.
Silicon Valley bank has been forced to halt operations by regulators in the US. Essentially SVB is supposed to pay out all depositors, Circle USDC included. However, the company cannot withdraw because the bank claims not to have the US$3.3 billion owed to Circle.
With the fallout between USDC and SVB, many crypto traders holding the USDC have panicked, forcing heavy selling as they transfer their funds to another stablecoin, for example, USDT.
UST Crash
The USDC de-pegging is not the first one. Last year, we witnessed the depeg of the UST Coin under the Luna company. The UST went from 1.1 UST to dollar conversion rate down to zero.
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The effect of USDC on the DAI
Another contagion witnessed is the DAI coin ecosystem. The DAI token is based on reserves of Ethereum and other stablecoins such as the USDC. Since the stablecoin started de-pegging, DAI has lost over 10 per cent of its value.
Major cryptocurrency trading platforms dump USDC
Following the depeg, major cryptocurrencies such as Coinbase and Binance limited their association with USDC.
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. Coinbase Twitted.
Binance has temporarily suspended the auto-conversion of USDC to BUSD due to current market conditions, specifically related to high inflows & the increasing burden to support the conversion. Binance
Circle CEO hints on a USDC save
On Monday morning, Jeremy Allaire, Circle CEO, twitted that the depeg had been restored to normal.
Following the joint announcement by U.S. Treasury Secretary Janet Yellen and U.S. prudential regulators, all depositors with Silicon Valley Bank and Signature Bank, which was closed by regulators today, will be made whole. The $3.3 billion USDC reserve deposit held at Silicon Valley Bank, about 8% of the USDC total reserve, will be fully available when U.S. banks open tomorrow morning. No USDC cash reserves were held at Signature Bank. As a regulated payment token, USDC remains redeemable 1:1 with the U.S. Dollar.
This is good news to the holders of USDC, but everyone is waiting to see if the 1:1 ratio will return when the market opens on Monday morning.
Elon Musk hints at buying Silicon Valley
SVB is a crucial bank to the startup ecosystem in America, and the United States investors might salvage the bank. Elon Musk on his Twitter page hinted at the potential of buying the bank. There is hope that things will get back to normal with the stablecoin.
There is immense pressure as it is because crypto traders are fearful that there might be another crypto company that could have stored their value in the same bank. This means that if there are any, they will also follow the same route as USDC.
Ultimately, if traders lose trust in stablecoins, the crypto market will lose a significant number of traders and investors. The crypto winter appears to still have a strong grip on the market and many states that the days of 400x coins could be long gone.
