USDC Stablecoin Depegs
Coindesk reports USDC Stablecoin Depegs, Crypto Market Goes Haywire After Silicon Valley Bank Collapses
USDC’s normally stable price sank to $0.869 from $1 while Ethereum gas fees soared hours after the crypto-tied bank failed.
Stablecoin prices wildly swung and gas fees soared as investors scrambled to move money around hours after regulators shut SVB amid a run on the bank, which had ties to crypto. It was the second crypto-linked bank to go under this week.
In the aftermath, Treasury Secretary Janet Yellen convened top financial regulators to discuss the collapse of SVB. Not long after, crypto markets went into turmoil, suggesting the more-than-year-long bear market has entered an even darker phase.
Circle Internet Financial’s USDC stablecoin massively depegged from its intended $1 price – a harrowing development for a product designed as a place for investors to safely park money.
USDC Transactions Halted
What’s the Bear Case
What’s Missing?
- A huge run on the exchange could cause it to collapse.
- Haircuts
Unless Circle has other issues, the main risks at the moment is haircuts and a huge loss in trust.. I will do a post later on what I think will happen and how big the haircuts will be.
But my bottom line is don’t expect bailouts. Depositors in amounts above the FDIC limit are highly likely to take a haircut.
How Circle parses those haircuts is unknown. Also unknown is the size of the run on Circle because it halted redemptions.
Circle’s USDC Stablecoin Breaks Peg With $3.3 Billion Stuck at Silicon Valley Bank
The Wall Street Journal reports Circle’s USDC Stablecoin Breaks Peg With $3.3 Billion Stuck at Silicon Valley Bank.
USD Coin fell below 87 cents on Saturday morning, according to data from CoinDesk. The virtual currency, known as a stablecoin, is designed to trade exactly at $1. It is backed by real U.S. dollars and short-term government debt, and sits at the heart of cryptocurrency trading.
Another stablecoin, Dai, also broke from its $1 peg, trading as low as 90 cents Saturday. Dai, the fourth-largest stablecoin worth around $5 billion, is partially backed by USD Coin, also known by traders as USDC.
Circle isn’t the only crypto company affected by the collapse of Silicon Valley Bank. Crypto lender BlockFi, which filed for bankruptcy in November, had roughly $227 million in unprotected funds at the bank, the U.S. Trustee, a unit at the Justice Department overseeing bankruptcies, said in a court filing Friday.
Asked if Circle was a moneymaking machine in an interview in January, Circle founder Jeremy Allaire said, “It is.” He added: “Monetization really scaled up in 2022.”
The USD Coin reserves remaining at Silicon Valley Bank comprise about 8% of the roughly $40 billion in assets backing the token, according to Circle. Circle has said it maintains around 20% of its holdings in bank deposits and 80% in three-month government securities. Without access to the bank deposits, Circle may face difficulty meeting redemption requests.
What About Trust and Lies?
Let’s take a look at Circle’s Website for inaccurate statements.
Stability you can trust
Known as a fully-reserved stablecoin, every digital dollar of USDC on the internet is 100% backed by cash and short-dated U.S. treasuries, so that it’s always redeemable 1:1 for U.S. dollars. USDC reserves are held in the custody and management of leading U.S. financial institutions, including BlackRock and BNY Mellon.
Sorry, that’s false. Given that it halted redemptions, it’s not always redeemable.
More importantly, “Every digital dollar of USDC on the internet is [NOT] 100% backed by cash and short-dated U.S. treasuries.”
Known Lie or Bad Assumption?
This can be a known lie by Circle or a bad assumption by Circle.
What did SVB promise Circle? Higher yields on long-dated treasuries perhaps?
Did Circle knowingly take on extra risk seeking yield on 10 percent or so of its assets?
Reserves Composition
Known Lie
Forgive me for asking a second time, but what about the long-dated treasuries at Silicon Valley Bank?
And if I can ask further, what is the duration on the assets held at Blackrock?
We need to see the deals Circle made at SVB and Blackrock to be sure. But one thing we do know, and Circle now knows for sure, is the above chart is a lie.
Circle is not 100% backed by short-term treasuries and cash. That’s a fact. and we need to find out whether this was on purpose or an accident.
Hoot of the Day
Silicon Valley Bank Collapses, 93 Percent of Deposits Not Insured! What Now?
To help tie some of the missing pieces together, please see Silicon Valley Bank Collapses, 93 Percent of Deposits Not Insured! What Now?
Later today I will take a stab at how big the haircuts will be.
Meanwhile, ponder the idea that Blackrock undoubtedly knew Circle’s claim that “every digital dollar of USDC on the internet is 100% backed by cash and short-dated U.S. treasuries”.
So, what is the duration of Circle’s assets at Blackrock?
This post originated at MishTalk.Com.
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