USDC Depegging due to Silicon Bank collapse

[adaseb]

For those that don't know. Silicon Bank was 1 of 6 banks which held 25% of Circle's USDC reserves. 75% were held in short term treasuries but 25% in actual banks. The problem is Circle doesn't want to state how much they have in SVB and there is panic ongoing.

Currently looking at their redemptions looks like 9-10 figures worth is getting redeemed for fiat.

https://etherscan.io/tokentxns?a=0x55fe002aeff02f77364de339a1292923a15844b8

Looking at various exchanges, you can now buy USDC for 0.96 on Gemini and other exchanges, it wicked 0.95 a few times. Going to get worse and worse as the weekend goes on and the SVB situation is not resolved.

Even some Defi platforms have people dumping USDC / DAI for USDT. Not looking good.

[mk4]

Circle recently tweeted: "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."

https://twitter.com/circle/status/1634391505988206592

Surely that's going to suck for them business-wise, but assuming this is accurate — this doesn't seem that bad at all.

[yat97]

Why is DAI also depegged right now?

If USDC went to zero, would DAI go to zero too?

[vv181]

~

It is because USDC is one of the DAI reserves. The reason why algorithmic stablecoin works is because another token or coin backs its value. Since USDC got a hit, it is expected DAI will go down.

As of now, MakerDAO who governs USDC make new proposal to limit USDC exposures within its reserves and make a new changes to their protocol to limit other reserve that might get a hit if the current Silicon Valey Bank and Silvergate contagion spiraling out of control. You can take a look at the proposal here: https://forum.makerdao.com/t/emergency-proposal-risk-and-governance-parameter-changes-11-march-2023/20125.

[thecodebear]

Looks like USDC is starting to recover...looks like it got down to 88 cents or so yesterday and is now back to 94/95 cents.

I don't know how this stuff works but I would hope Circle has the money in banks insured against this sort of thing.


But like damn, I guess its a really tough problem to figure out how to have a safe stablecoin.

I thought algorithmic was the future and then UST collapsed, though to be fair that stuff was centralized by the Terra Luna foundation or whatever and they had way too much control over the ecosystem, and I guess UST trading was too thin so a large financial attack against it took the whole thing down. And now we see that even if you have a centralized backed stablecoin you are still then just relying on the banking system to not falter.

[OgNasty]

Gemini’s GUSD is apparently also depegging. I think it’s because Gemini is insolvent and trying to stay alive as a zombie long enough to recoup loss of customer funds. There are also rumors of many liberal celebrities like Harry and Meghan along with Oprah losing millions of dollars as a result of Silicon Bank’s collapse. I don’t know how true that is but it’s interesting that they would have their money in such an under collateralized bank.

[Anonylz]

Todays trending assets on coingecko are all stablecoins, how wonderful, the supposed stablecoins that are supposed to be the pillar of investors keep disappointing investors rather too frequently lately.
I look at the whole stablecoins in the market I can't seem to trust anyone of them, it is sad there is no stablecoin that is actually backed 1:1 to USD with a solid reserve for sustainability.  
All seem to have their baggage which is not known to the public.

[Captain Corporate]

It is already recovering a bit, which is what I assumed would happen considering that they are just too big to fail at this point and must have profited enough to cover this. Plus the "news" of it made it a bigger thing than what it actually was, I knew that it would recover at least a bit, and it is obvious that the peg wasn't broken but even if it was, not at a %10 rate without a doubt. I think people are a bit reactionary when it comes to their money and can't act in a pragmatic way, which causes them to lose it. If you could be a bit more robotic, then you would be able to see the picture a bit more clearer.

[adaseb]

Its almost ~24 hours since it first started to depeg and its currently around 0.95 which is pretty bad. When tether depegged it never stayed depegged this long. The lowest was around 0.85-0.88 on some exchanges.

Reports are coming out that the arbitragurs cannot redeem any more USDC until Monday because the Signature Bank SegNet is overloaded and cannot handle the volume. While Tether is still chugging along.

[Hydrogen]

SVB's collapse is one of the most significant events in the sector since the 2007/08 global financial crisis.

The bank fell victim to the rapid rise in interest rates in the past 12 months, which hurt SVB's bond offering. Meanwhile, higher rates have hamstrung fundraising attempts among its startup customer base, sparking withdrawals.

The lender had funded nearly half of US startups, according to its website.

https://www.businessinsider.com/mark-cuban-calls-federal-reserve-buy-silicon-valley-bank-debt-2023-3?op=1

Interestingly, rising interest rates are credited with hurting Silicon Valley Bank's bond offering. Which they need to fund ongoing operations. Their location in silicon valley, which has been viewed as a hub of innovation, implies much of their business was involved in funding start ups. Of which they claim to have funded 50% of all start ups in the USA.

Whatever their stock is worth. It could see a big boost if they're bailed out by the fed. Or crash further if they're not bailed out.

There was a report released a few years ago claiming that a high percentage of big banks were underfunded and would be vulnerable if a recession occurred. I will try to dig it up and find it, later.

[adaseb]

SVB's collapse is one of the most significant events in the sector since the 2007/08 global financial crisis.

The bank fell victim to the rapid rise in interest rates in the past 12 months, which hurt SVB's bond offering. Meanwhile, higher rates have hamstrung fundraising attempts among its startup customer base, sparking withdrawals.

The lender had funded nearly half of US startups, according to its website.

https://www.businessinsider.com/mark-cuban-calls-federal-reserve-buy-silicon-valley-bank-debt-2023-3?op=1

Interestingly, rising interest rates are credited with hurting Silicon Valley Bank's bond offering. Which they need to fund ongoing operations. Their location in silicon valley, which has been viewed as a hub of innovation, implies much of their business was involved in funding start ups. Of which they claim to have funded 50% of all start ups in the USA.

Whatever their stock is worth. It could see a big boost if they're bailed out by the fed. Or crash further if they're not bailed out.

There was a report released a few years ago claiming that a high percentage of big banks were underfunded and would be vulnerable if a recession occurred. I will try to dig it up and find it, later.

I don't think they will be bailed out. The FDIC will do its best and perhaps when the assets are liquidated people might get 80-90% of their funds back. The issue is if a larger bank such as Schwab gets close to defaulted and then the fed will have no reason but to bail them out AND cut interest rates at the same time since the markets obviously cannot handle it.

Even SVB was large, it wasn't large enough on the fed radar to make it signiicant. Most likely by Monday we might get news that its taken over by one of the larger banks.

[AmoreJaz]

No bail out? But from what I read everywhere come Monday everything will be fine. The US Fed chairman will appear to apologize for raising rates, cut them to 0 and restart QE so we can all become greedy again  

but hard to trust these guys. but if you want to bet on this, you can buy a lot of USDC so you can see your profit in case it goes up again. otherwise, just observe how this situation will pan out in the coming days.
this scenario is a very good example that even top platforms can go down without a warning. not all stable coin can maintain the price where they are pegged at. even backed by top and reputable companies. they are not immune to some type of catastrophe.

[Ultegra134]

When I saw it first thing in the morning, it was extremely worrying, not only for USDC but for the market in general. So far, it seems to be moving towards the road of recovery, as it has climbed to $0.96 compared to $0.90 in the morning. It's concerning that such a stablecoin is yet to return to its $1 peg, but eventually it will, and the incident will be long forgotten. We'll see how things go in the next 24 hours before we can make any further assumptions.