The USD Coin (USDC) has de-pegged and is down roughly 9% at 91 cents, as a result of the collapse of California-based Silicon Valley Bank. Circle, the firm that issues USDC, had reserves at the bank and therefore, its exposure has affected the stablecoin. Red Nooner from Crypto Banter suggested that Circle should redeem USDC as per agreements, but the base would decrease as the amount of redemptions increases, weakening the peg and potentially leading to a price decline. Despite this, Circle has 40.2 billion in liquid reserves and if the bigger parties in the US do not bail them out of the situation, they can recoup their losses.
USDC De-Pegs: What Happened and What Does It Mean for Crypto?
USDC, the popular stablecoin with a one-to-one peg to the US dollar, experienced a de-pegging event that sent its price plunging to a low of 85 cents. This news has left many crypto enthusiasts worried about the long-term stability and reliability of USDC and the impact of this event on the broader market.
The de-pegging of USDC occurred as a result of the recent collapse of Silicon Valley Bank (SVB), one of the six banking partners of Circle, the company behind USDC. Circle had reserves with SVB, which meant that they were exposed to the bank. While Circle’s exposure to SVB was relatively small as a percentage of its assets, the bank’s closure and inability to transfer funds prompted the de-pegging of USDC.
What does it mean?
For crypto enthusiasts, this event is a reminder that stablecoins are not always as stable as they appear. The confidence in USDC’s peg has been shaken, and investors are wondering if other stablecoins will be able to withstand similar events.
However, there are also hopeful signs. Many experts believe that USDC will be re-pegged, albeit with a slight delay as Circle works to transfer its reserves from SVB to other banks. Additionally, there are assurances that USDC will remain properly backed and that Circle will be able to recoup its losses.
The bottom line
While the de-pegging of USDC has undoubtedly caused concern in the crypto community, it is important to remember that stablecoins are still a vital component of the crypto ecosystem. As Circle and other companies work to address the SVB fallout, investors should keep an eye on the stability of other stablecoins and the broader market.