- Panic spread as many USDC holders sold their USDC under the peg.
- Technology and cryptocurrency companies have been exposed to huge risks due to the collapse of SVB.
Cryptocurrencies avoided a major crisis – the USDC stablecoin reclaimed its currency’s peg to the US dollar after panic over its reserves rocked the markets.
Sunday, USDC issuance circuit She revealed that she holds $3.3 billion of her reserves in the recently bankrupt Silicon Valley Bank (SVB). That number comes to nearly 8% of its $40 billion in reserves.
These discoveries sent the US dollar down to an all-time low of $0.88, well below its expected price of $1. USDC re-pegged its currency on Monday after authorities revealed plans to limit the fallout from the SVB collapse.
The Treasury Secretary announced plans to protect depositors
Treasury Secretary Janet Yellen said the government would Yoffe, make up All SVB depositors. However, she rejected the idea that the government would bail out the bank.
“Let me point out that during the financial crisis there were investors and owners of large, systemic banks who were bailed out,” Yellen said for CBS. “We will never do that again,” she added.
“But we are worried about depositors, and we are focused on trying to meet their needs,” Yellen added. This also means Circle, which is the main depositor of SVB Bank.
He said “100% of deposits from SVB are safe and will be available in open banks tomorrow” Jeremy Allaireco-founder and CEO of Circle, after US regulators decided to step in.
SVB encounters Crash Crypto and Tech Hard
The collapse of the Silicon Valley bank did not only affect the US dollar. Crypto and technology companies made up the majority of the bank’s clients. The Circle CEO was among the many entrepreneurs who welcomed the intervention of US financial authorities.
“We are encouraged to see the US government and financial regulators take decisive steps to mitigate risks extending from the fractional banking system,” Allaire said.
On Sunday, angel investor Jason Calacanis called on US authorities to intervene on behalf of depositors.
Silicon Valley Bank is a cryptocurrency-friendly bank that has benefited greatly from the tech boom in 2021. When the Federal Reserve started raising interest rates, unprofitable cryptocurrency companies and tech companies suffered. These made up most of SVB’s clients, so the bank ran into financial problems.
Panic Spread – USDC currency holders are selling at a loss
Although USDC restored its currency peg, the unpegging was not without financial consequences. As panic spread, USDC holders cashed out in a panic, which contributed to the selling pressure.
On-chain data showed USDC outflows as investors sold their holdings. Many investors sold US dollars for less than $1, potentially posting a loss on their purchase.
On Saturday, Circle burned $2.34 billion on stablecoin redemptions while minting $366 million. Issuers like Circle send the tokens back to the clone address whenever users redeem them to ensure price stability. Likewise, the circuit mints new tokens when tokens are required.
According to Nansen, recoveries slowed dramatically on Sunday, with Circle burning $649.3 million and pending $16.7 million. Despite significant selling pressure, the US dollar rebounded to around $0.97 after Circle announced that it would defend its currency peg.
Pullout pressure cooled further Monday, as Circle burned $314 million while minting $407.8 million.
on the flip side
- The US authorities did not have to bail out all the depositors. The standard insurance amount is $250,000 per depositor.
- The fallout from SVC could have had ripple effects across cryptography and technology. The cryptocurrency market capitalization increased by 12.46% following the announcement.
Why should you bother
The USDC panic showed how closely cryptocurrencies are connected to the traditional financial system.
Read about stablecoin problems at Circle.
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