USDC depeg! What’s happening?
On 10 March 2023, the 16th largest US bank, Silicon Valley Bank, went bankrupt. One of the companies that had money deposited in Silicon Valley Bank is Circle, the company behind the USDC, the world's second-largest stablecoin.
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On the night of 11 March 2023, Circle posted a tweet announcing Silicon Valley Bank (SVB) as one of six banking partners. The company confirmed that they held approximately 3.3billion USD of $USDC backing at SVB.
After the news, the value of $USDC dropped to below 0.87 per USD overnight, causing a depeg. Following this, various projects and protocols associated with $USDC experienced significant losses. The market capitalization of $USDC has now fallen below 40 billion USD, but the situation looks much better, and $USDC is slowly returning to its peg.
Of the total 40 billion USD of $USDC reserves, 3.3 billion USD’s worth is tied up in SVB. In a blog post, Circle said, “we will stand behind $USDC and cover any shortfall using corporate resources, involving external capital if necessary.”
Overnight, the value of $USDC dropped below 0.87 per USD, causing a depeg. Following this, various projects and protocols (e.g., $DAI, $FRAX, and $GNS) associated with $USDC also experienced significant losses. It is clear that if $USDC were to fall below certain levels, it would risk a huge problem for all of DeFi, with liquidation cascading across the entire space. However, this scenario is unlikely to happen at the moment.
The bankruptcy of Silicon Valley Bank and the resulting depeg of $USDC serve as a reminder of the vulnerability of centralized stablecoins to global monetary and economic risks. Furthermore, the fact that many decentralized assets are backed by centralized stablecoins poses a significant risk to the future of DeFi as a whole. In light of the current unease in the crypto sector regarding $USDC, investors must remain vigilant and informed during market volatility. It is crucial to avoid impulsive decisions based on uncertainty or unpredictability, and to remain composed and clear-headed.