Circle’s USDC Stable Coin Has Repegged at $1• March 16, 2023 4:35 pm • Comments
After the collapse of Silicon Valley Bank, Circle’s USDC stable coin had temporarily been depegged from the $1 mark due to Circle’s large exposure to the SVB collapse.
The price of the stable coin had dropped nearly 10% for a period of time as investors speculated whether or not the company would be able to recover the funds from SVB.
This was important because Circle uses cash reserves in order to backup the value of each USDC.
USDC is also considered the second largest stable coin in the crypto market so the collapse of it would have negative implications for the crypto markets.
Fortunately, the USDC stable coin has been able to regain the $1 peg after the company announced that it would use corporate funds to maintain cash reserves and the government’s announcement that it the SVB deposits would be accessible by customers.
.@Circle assured investors it would “cover any shortfall” in $USDC reserves using corporate funds should it not recover the full $3.3 billion, which helped it rebound to $0.97.https://t.co/ACXLmUkMhM pic.twitter.com/iopvvbuXTO
— Bogdan Duman (@BogdanDuman) March 13, 2023
Now, the Circle USDC stablecoin has repegged and is currently trading at $1. Moreover, Coindesk initially reported the regain of the dollar peg and noted the part that the Federal Reserve aid played in the development.
The Circle-issued stablecoin plummeted in value on Friday, as users learned of the company’s exposure to SVB Financial. Subsequently, they acknowledged that they maintained around $3.3 billion over funds backing USDC in the now-closed bank. A total that represents approximately 8% of the overall funds.
Ultimately, Coindesk notes that the FDIC sale of SVB’s assets will present uninsured depositors with a dividend.
Thus, this should be a positive for depositors at the bank, as 90% of funds held in Silicon Valley Bank were uninsured.
With this being said, it seems that a lot of investors are now more cautious about parking large amounts of capital into stable coins due to the recent incident.
This is not the first incident that had involved a stable coin as other stable coins have also been depegged or lost value in the past year.
Currently, there is still extremely large trading volume for USDC on many crypto exchanges given that there aren’t much other alternatives when it comes to stable coins.
The other big competitor in the space, Tether’s USDT, has a lot of controversy of not having the cash reserves to backup despite being the largest stable coin when measured by market cap.
USDC being able to survive more incidents may eventually allow investors to have more confidence in it being the most favorable stable coin asset.
JUST IN: Circle $USDC stablecoin repegged and is now trading at $1.
— Watcher.Guru (@WatcherGuru) March 13, 2023
On Monday, in a weekly newsletter, Jeff Dorman, chief investment officer at digital asset investment firm Arca, wrote that “likely one-fourth or half of USDC assets under management” – worth around $10-$20 billion – will be redeemed. He also suggested that USDC could rebound.
“Even though USDC is itself backed by real assets, those assets are held by Circle, Coinbase and a lazy susan of exploding banks,” Dorman wrote. “If USDC passes this stress test, it’ll likely grow assets again over time.”
Data provider Coin Metrics wrote in a weekly newsletter that the USDC event has highlighted “the risks posed by excessive reliance on centralized infrastructure, and will be certain to inform future decisions.”
USDC repeg: the beginning of a new era. https://t.co/uB2oKqvMIt
— Alex Svanevik 🐧 (@ASvanevik) March 16, 2023
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