USDC and Other Stablecoins Experience Significant Depegging as Silicon Valley Bank Crisis Continues
USDC (USDC)
Rank: 6$ 1.00Price (BTC)Ƀ0.00001600Marketcap$ 35.37 BVolume$ 6.84 B24h Change0.09%Total Supply35.34 B USDC
Rank: 6
The ongoing crisis surrounding Silicon Valley Bank has sent shockwaves through the cryptocurrency market.
The global digital asset market saw a significant recovery on Saturday morning, with Bitcoin and Ethereum rising by 3% and 5%, respectively, after a major sell-off. However, the ongoing crisis with Silicon Valley Bank has resulted in a significant depegging of major stablecoins like USDC, DAI, and USDD. USDC, in particular, has seen an 11% drop in value and is trading at an average price of $0.912, with its 24-hour trading volume surging by 321% to $18.54 billion once it lost its fixed value of $1.
Circle, the issuer of USDC, has named Silicon Valley Bank as one of its banking partners and is awaiting information about the potential impact of the FDIC’s receivership of SVB on its users. Other stablecoins like DAI and USDD have also experienced depegging issues, with their prices falling by 10% and 5%, respectively, during the previous day.
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
What is USDC?
USDC, or USD Coin, is a stablecoin that is pegged to the US dollar. It was created by the Centre Consortium, which is a partnership between Circle and Coinbase, in September 2018. The purpose of USDC is to provide a stable and reliable cryptocurrency that can be used for transactions and payments, as well as for trading on cryptocurrency exchanges.
USDC is built on the Ethereum blockchain, which means that it operates using smart contracts.
Smart contracts are self-executing contracts that are programmed to automatically execute when certain conditions are met. In the case of USDC, the smart contract ensures that every USDC token is backed by an equivalent amount of US dollars that are held in reserve by regulated financial institutions. This means that for every USDC token that is issued, there is a corresponding US dollar that is held in reserve.
The process of creating USDC involves a few steps. First, a user sends US dollars to a regulated financial institution that is part of the Centre Consortium. Once the US dollars are received, the financial institution mints an equivalent amount of USDC tokens and sends them to the user.
The US dollars that were received are held in reserve to ensure that every USDC token is fully backed by US dollars.
USDC can be used for a variety of purposes. One of the main use cases is for trading on cryptocurrency exchanges. Since USDC is pegged to the US dollar, it provides a stable trading pair for other cryptocurrencies. This means that traders can use USDC as a way to hedge against price fluctuations in other cryptocurrencies, or as a way to move funds between exchanges without having to convert them back to US dollars.
Another use case for USDC is for payments and transactions.
Because USDC is built on the Ethereum blockchain, it can be sent anywhere in the world instantly and with very low fees.
This makes it an attractive option for merchants who want to accept cryptocurrency payments without having to deal with the volatility of other cryptocurrencies.
USDC is also used in decentralized finance (DeFi) applications.
DeFi applications are decentralized applications that allow users to access financial services without the need for intermediaries such as banks or brokerages. Because USDC is built on the Ethereum blockchain, it can be used in DeFi applications to provide liquidity, to earn interest through yield farming, or to provide collateral for borrowing and lending.
While USDC is a popular and widely-used stablecoin, it is important to consider some of its potential downsides:
- Centralized control: The Centre Consortium, which governs USDC, has the ability to freeze or seize USDC tokens at any time, and can also change the rules governing the stablecoin. This centralization could be seen as a potential risk to the stability and reliability of USDC.
- Counterparty risk: While USDC is fully backed by US dollars that are held in reserve by regulated financial institutions, there is still counterparty risk involved. If the financial institutions holding the US dollars were to experience financial difficulties, it could affect the value of USDC.
- Regulatory risk: The stablecoin market is still largely unregulated, and there is potential for regulatory changes that could affect the use and value of USDC.
- Limited use cases: While USDC is used for trading, payments, and in decentralized finance applications, it may not be as widely accepted as other payment methods or cryptocurrencies. This limits its usefulness in certain situations.
- Competition: There are many other stablecoins on the market, and USDC may face competition from other stablecoins that offer different features or advantages.
Final Words
While USDC has gained popularity and acceptance in the cryptocurrency market, it is important to consider the potential cons and risks associated with its use. Investors and users should carefully evaluate these factors before deciding to invest in or use USDC.
