Circle held around $3.3 billion in Silicon Valley Bank, leading to a run on USDC which resulted in it trading for as little as $0.95 on some exchanges today (Mar 10, 2023). This represents around 30% of USDC's cash reserves and 7% of its total reserves. The balance of reserves are held in T-Bills, which are liquid and typically can only be traded during market hours. Coinbase itself has around $2B of USDC on hand. Circle's rumored exposure to Silvergate's collapse is also a concern.
If more than $7.8B of USDC were to be liquidated over the weekend, USDC would be effectively insolvent. Freezing trades until the market reopens limits this. USDC should rapidly stabilize due to being backed by very liquid hard assets, but it will probably lose significant marketshare to Tether.
UPDATE: USDC Liquidity pools on other exchanges are becoming completely drained, pulling down the peg. https://www.reddit.com/r/CryptoCurrency/comments/11oaz39/coi...
But if you can't redeem it and it's not backed by anything remotely approaching normal assets, I guess you can't have a bank run on it either... until the music stops and the insiders propping it up run out of chairs.
The federal reserve could stand to learn a thing or two, honestly.
Few understand.
It's so ridiculous I just have to kind of admire it. It's like a cathedral of human hypocrisy.
If the US banking system starts failing, it absolutely should affect USD stable coins backed by exactly this banking system.
When things stabilize and start going down, it's like the morning after the frat-party, bad things come to light. Crypto is fundamentally a negative sum game, it takes enormous resources to run and has generated a large number of self-minted millionaires that have cashed out and lamboed their earnings. There is very little actual marketable utility that crypto provides that could cover these large outlays, perhaps with the exception of facilitating money laundry and illegal transactions. I guess that's a business, but (hopefully) not a multi-trillion business suggested by the bubble's peak.
So it's inevitable the game must end with someone holding the bags.
Ok I'll buy that if you or I wanted to sell treasury bills, but... if a company needs to liquidate $10B of treasury bills over the weekend, can't they just call up the CEO of JPMorgan and say "hey we'll give you 10 basis points over Monday's 9AM rate" and make a deal happen?
It dipped as low as .82 on Gemini. I used the chance to buy some to settle a debt denominated in USDC on Compound, though I haven’t yet paid it back because transaction fees on the ethereum network surged too.
DAI fell below .90 even though it’s so overcollateralized that even the 100% loss of SVB funds shouldn’t make it insolvent: https://news.ycombinator.com/item?id=35105876
>USDC Liquidity pools on other exchanges are becoming completely drained, pulling down the peg
Nit: liquidity pools (at least of the kind described in the link) are decentralized and don’t live on an exchange.
(I'm no expert though, correct me if I'm wrong)
Edit: Parent comment is now correct
USD Coin is managed by a consortium called Centre, which was founded by Circle and includes members from the cryptocurrency exchange Coinbase. Circle used SVB.
That's why Coinbase are stopping withdrawals.
As someone who only observes crypto, the past 4.5 hours (at my time of writing) has been interesting to watch.
https://twitter.com/stablekwon/status/1523733542492016640?s=...
DAI has quite a substantial percentage of USDC in their reserves as well.
We could witness another death spiral. Let's see how events turn out to be.
Similar to SVB, from what I understand. SVB parked several billion in treasuries when rates were at ~1.6%, when interest rates went up, that portfolio drew down, they exited with a loss, this triggered a run.
So if Circle has 70% of its reserves in T bills, they possibly took a market to market loss too, depending on how they were hedged.
(Disclaimer: i have not seen SVB balance sheet, nor Circles.)
Interestingly Tether also reacted to this news by going up to $1.03 briefly. That's not really good either, but it makes sense as a symmetric thing. It'd be an arbitrage opportunity except the market is so broken you can't execute it reliably.
there are no freebies in finance. no one knows what is left. probably less than many think.
It’s like some sort of wacky deadlock condition.
Seems like everyone is just making things up. I'm not sure of the split between "I'd like something to be true" and "I'd like someone else to think it's true".
It turns out if you have no assets you have no exposure.
You can't have exposure, if you don't have any real assets.
Frankly, this is all mind blowing - it will be in all finance books in the future, and we have the privilege to see it happening.
In short, they are battle and stress tested to the maximum.
They're experts in fraud and deception.
Tether didn't hold its peg though; it went up to about $1.03. For a stablecoin going up is as bad as going down. https://coinmarketcap.com/currencies/tether/
How do you know?
Of course the Bitcoin maximalists will shake their heads, mutter about self-custody, and then go on conducting their actual finances in dirty fiat because Bitcoin is nearly impossible to use for anything that people actually want to do.
I think cryptocurrencies suffer from the fact most people seem to use them purely for speculation. I can't remember the last time I've paid by cash but I've never seen any store accept USDC or Dogecoin or anything else. Some online stores used to take cryptocurrencies but they've all stopped as far as I can tell.
Mayne this isn't true in other countries. I can imagine people in Argentina or Turkey or Venezuela using cryptocurrencies because their official currency is even less stable than your average cryptocoin and because foreign currencies often become available in limited numbers when banks struggle to contain their slipping currencies, basically sidestepping the government or the banking system. I haven't seen any evidence for it, though.
Since Coinbase can (at least in the US, to my knowledge) also not transfer any USD out on the weekend, shouldn't it be risk-free to take on any USD liability over the weekend, at least when considering USDC itself risk-free?
How many of them need to fail before it is clear this is not a viable mechanism?
If this panic turns out to be nothing and the value will recover, some people panic trading right now are going to be at a loss. If trading in tokens for dollars doesn't come back spoon, the value may drop more and the panic sellers may be the ones that made the right choice by selling early.
The stability now hinges on whether or not cryptocurrency can be turned into real currency. At the moment, conversions are dropped, so it makes sense that the value has dropped. I don't believe for a second that this has to do anything with "banks closed during the weekend", I'm assuming the people behind the platform are now trying to figure out how to get liquidity with billions tied up in a shut down bank for the foreseeable future (or forever if SVB turns out to be insolvent after all). Maybe they can sell shares or trade other kinds of cryptocurrency reserves to make up the difference so exchanging USDC for real money can continue (probably bringing the price back up to a dollar immediately), maybe they can't and they're doomed.
If you have faith in the stablecoin, this may be the right moment to basically buy dollars for a 10% discount. If you don't and you have some money tied up in crypto exchanges, this is the moment to consider getting your money out before the impact of the depeg spreads.
If they can get enough real dollars to fulfil the demand, this may just prove that this is a viable mechanism, showing how stablecoins can survive with a significant amount of their real money inaccessible. It ain't over till the fat lady sings!
The problem is a stablecoin holds reserves in a bank which the bank is then investing in non liquid assets which puts you in the current predicament. On paper USDC had these cash reserves, but in reality if you follow the trail all the way down you find out that those cash reserves are actually MBS’s and 10 year bonds.
A stablecoin which operated it’s own bank could guarantee that all reserves are actually being held in cash ready to wire transfer at a moments notice.
This refers to facts not in evidence.
The potential collapse of USDC is not a reflection on the Tether fraud in any way. Outcomes in one are not evidence for or against anything in the other and it is a mistake to conflate them.
In the balance sheet a cannot find the unrealized loss
Startup A is probably closing down, let's hope not and wait until Monday for a bailout.
Startup B cut losses and walked away with ~9.2M, on a weekend.
There is something to learn here about counterparty risk and outdated regulations/legislations. SVB from a time when no credit cards existed, USDC from a world where the iPhone had already been invented.
In Case of a traditional Bank Run (SVB), pulling the money out is the overwhelmingly best thing to do due to game theory logic. This means once a bank run starts, there's no stopping it.
But in Stablecoins, the coin "depegs", this gives people a reason to actually buy and support the coin if they think insolvency won't happen.
