If Dalmas Ngetich of NEWSBTC is to be believed, the current issues surrounding Circle’s USD Coin (USDC) are worrying, but the stablecoin is not going to zero. The analyst cannot imagine that a scenario similar to Terra (LUNA) is currently playing out for the company. What we do see at the moment is that the entire crypto market is fleeing towards alternatives such as Tether (USDT) and Binance USD (BUSD).
The stablecoin decoupling
At the time of writing, USDC is trading at $0.9132 and slowly climbing back up. Earlier in the day, the price was below $ 0.90 and the concerns about the project were enormous. Due to the troubles at Circle, which confirmed $3.3 billion in capital tied up at the beleaguered Silicon Valley Bank (SVB), a kind of digital bank run is currently underway.
In any case, the market value of USDC has fallen considerably, but according to Ngetich, the market does not have to worry about a total collapse of the project. “Amid all the fear, USDC is unlikely to crash to zero like UST, Terra’s algorithmic stablecoin, did,” the analyst said.
In principle, every USDC stablecoin is backed 1:1 by cash and cash-like financial instruments such as government bonds. The only problem right now is that $3.3 billion of the market cap of — currently $37.3 billion — is locked up within SVB’s systems.
Enough reserves for USDC on board
Circle, of course, makes itself heard with reassuring reports that there are sufficient reserves on board to get the situation under control. As a bank, SVB also falls under the insurance policy of the FDIC, which means that 94 percent of the credits will in any case return to Circle. That would limit the maximum loss to “only” $ 198 million.
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
That is still a more than decent amount, but it is probably survivable for a party like Circle. Although that doesn’t change the fact that it’s a painful way to lose almost $ 200 million. Circle will likely be able to offset the loss with interest payments on government bonds, which currently hold a large portion of the company’s assets.
For now, it is a matter of waiting for banks to open on Monday before the peg to the US dollar can be restored by arbitrage traders. There are probably a lot of people speculating on the recovery of USDC right now, because with the current price of $ 0.91, there is still reasonable money to be made on it. Of course with the risk that it will not be possible to restore the link.