Here is all you need to know about USDC drama – Cryptopolitan

What is the USDC stablecoin? Well, for crypto investors, it’s Lord Voldemort – a coin name currently giving them cold chills. While the startup world digests the shocking implosion of the well-known financial institution Silicon Valley Bank, the repercussions may also affect the crypto industry. One stablecoin, USDC, was known as of January 17 to have held a portion of its backing capital at SVB, funds that are likely to be illiquid for several days.

USD Coin (USDC) is a digital currency backed by U.S. dollar assets. USDC is a tokenized version of the U.S. dollar, with one USDC coin equating to one U.S. dollar. To achieve price stability, stablecoins are commonly backed by reserve assets, such as dollars or euros.

USDC crash welcomes a Westeros cold winter

The crypto industry has been declining for months. A few weeks ago, Bitcoin began to recover, but problem after problem, the market has come crumbling down. The crypto ecosystem has devolved into a financial farce because of regulation hardball by United States regulatory arms, scam projects, and the demise of FTX.

The aftermath of the Silicon Valley Bank failure, the largest bank failure since 2008, spread overnight to the USDC stablecoin. After losing its dollar peg, the stablecoin dropped to as low as $0.88. The crypto market was dissatisfied with Circle’s lack of transparency regarding its exposure to the bank.

Here is all you need to know about USDC drama 1
Source: CoinMarketCap

The stablecoin experienced its largest devaluation since its inception in 2018. Its market capitalization fell below $40 billion, a 15% decline in the previous twenty-four hours, as $2.34 billion worth of USDC was burned, showing redemption for dollars.

According to Circle’s chief strategy officer and head of global policy, SVB is essential to the U.S. economy. Without a federal rescue plan, its failure will have far-reaching consequences for businesses, banking, and entrepreneurs.

On March 9, Circle initiated a wire transfer to remove its funds from SVB, which was about to cease operations and was insured by the Federal Deposit Insurance Corporation. However, on March 11, two days later, Circle confirmed that the wire transfers had not been fully processed, with $3.3 billion of USDC reserves remaining with SVB.

USDC is the second stablecoin to collapse, following Do Kwon’s Terra Luna. Without clarity from Circle, investors rushed to liquidate their holdings, exchanging them for alternative stablecoins such as Tether’s USDT or fiat currency.

The stablecoin experienced its largest devaluation since its inception in 2018. Its market capitalization fell below $40 billion, a 15% decline in the previous twenty-four hours, as $2.34 billion worth of USDC was burned, showing redemption for dollars.

An in-depth look at USDC reserves

According to Circle’s January attestation report, among other assets, the company had approximately $9.88 billion in cash deposited at regulated banks to support the value of its stablecoin. The allocations per bank were not disclosed.

However, the cash was held at regulated financial institutions like Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank (a division of Flagstar Bank, N.A.), Signature Bank, and, most notably, Silicon Valley Bank and Silvergate Bank. A Circle spokesperson said on Friday that:

Silicon Valley Bank is one of six banking partners Circle uses for managing the approximately 25% portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally.

Circle spokesperson

If Circle had more than a smattering of cash at SVB, there would be cause for concern that the stablecoin’s backing may no longer be complete and instead be less than what is required for a stablecoin to remain stable.

What a cold long DeFi market downtrend!! The winter in Game of Thrones plays no comparison to the financial losses crypto investors have shouldered the last year. The failure of the stablecoin wreaked havoc on both centralized and decentralized cryptocurrency exchanges.

Both Coinbase and Binance have suspended USDC conversions. On Kraken, USDT moved in the opposite direction, briefly increasing to $1.06 per dollar. As USDC holders fled the network, Ethereum transaction fees multiplied by ten. And other stablecoins, such as frax and DAI, which are also partially backed by USDC, depreciated to comparable levels.

Two weeks ago, on February 23, the USDC issuer Circle announced plans to increase its workforce by 25%, bucking the current trend of layoffs. This is now a thing of the past. The crypto community has joined in to offer their thoughts on the collapse of USDC. One user has remained positive, stating:

Others have spread doom on what lies ahead for the market. One user foresees BTC doom and fall.

Source: https://www.cryptopolitan.com/all-you-need-to-know-about-usdc-drama/