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USDC, the stablecoin tracing the USD, is under immense pressure as users rush to convert to other assets, including BUSD by Paxos and USDT by Tether Holdings.
USDC Has De-pegged
As USDC’s market cap rapidly shrinks, primarily because of mass exits, there has been a de-peg. The stablecoin is trading at $0.90 to the USD at the time of writing on March 11.
However, amidst this fear, USDC won’t likely crash to zero like UST, the algorithmic stablecoin by Terra, did.
The collapse of UST was attributed to its structure and backing by other digital assets, including Bitcoin and LUNA.
Since it depended on algorithms to track the value of the USD and always ensure parity, any pressure on any underlying coins, Bitcoin or LUNA, led to intense selling pressure, causing a de-peg.
The UST de-peg triggered a ripple effect that eventually saw the crypto market drop below $30k, causing massive liquidation and pain for affected holders.
What’s on the table currently is USDC by Circle. Although USDC is at $0.90, further weighing negatively on cryptocurrency prices, it is improbable that the USDC will drop to $0.
As an illustration, the token has a circulating supply of $40.9 billion as of March 11. Each USDC token, it should be noted, is backed 1:1 with cash, and redemption means every backing cash or cash equivalent from Circle must be sold and disbursed to the client.
Expecting Normalcy To Resume On Monday?
Circle has said it has enough reserves despite $3.3 billion out of the total $40 billion held at Silicon Valley Bank (SVB).
1/ Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.
— Circle (@circle) March 11, 2023
Because SVB was FDIC insured, there will be a 94% payout, meaning even if there is a loss of approximately $198 million, it won’t be a big dent for Circle to warrant fears and conversions to other stablecoins. The loss will likely be covered by interest payments from treasuries, where most of Circle’s assets are held in.
Several other factors worsen the current stablecoin’s preview, even contributing to the de-peg. The decision by Coinbase to pause USDC to fiat conversions over the weekend until Monday is stoking fear.
We are temporarily pausing USDC: USD conversions over the weekend while banks are closed. During periods of heightened activity, conversions rely on USD transfers from the banks that clear during normal banking hours. When banks open on Monday, we plan to re-commence conversions.
From next week Monday, the peg will likely be restored as arbitrageurs flow back in.
