USDC records largest single burn amid bank collapse

Since the beginning of this week, Circle has burned a record $2.2 billion USDC. The redemptions exceeded $4 billion on March 14.

The data suggests that many further USDC burns occurred throughout several independent transactions, with the amounts involved from $300 million to $600 million. That pushed the entire incinerated value of USDC to over $2.2 billion in just over a single day.

Moreover, around 723 million USDC was burned during the early hours of March 15 in Asia, making it the biggest USDC single burn.

USDC net redemptions hit $4 billion

On March 14, net redemptions of USDC reached $4 billion. As issuer Circle indicated over the weekend, it will execute all transactions and fulfill savings.

Net redemptions in crypto refer to the situation where the total value of cryptocurrency assets sold or redeemed exceeds that of assets purchased or subscribed to. This indicates a net outflow of funds from the cryptocurrency market and can be a sign of decreasing investor confidence or a shift in market sentiment.

Since the depegging a week ago, the dollar-backed stablecoin has yet to attract new investors successfully. As Silicon Valley Bank (SVB), where Circle had stored approximately $3.3 billion in treasury assets, was shut down by authorities, the USDC stablecoin saw a significant depeg from its original price of $1 on March 10.

USDC depeg visible on 7-day chart | Source: CoinMarketCap
USDC depeg visible on 7-day chart | Source: CoinMarketCap

Why stablecoins depeg

Stablecoins are cryptocurrencies designed to maintain a stable value, typically pegged to a fiat currency like the US dollar. However, stablecoins can depeg from their intended value for several reasons.

One common reason for stablecoins to depeg is due to market volatility. If the demand for a stablecoin suddenly increases or decreases, it can cause the price to fluctuate and potentially depeg from its intended value.

Another reason for depegging can be related to the stability mechanism of the stablecoin. Different stablecoins have different mechanisms to maintain their peg, such as over-collateralization or algorithmic adjustments. If the mechanism fails to function as intended or is not strong enough, it can cause the stablecoin to depeg.

Lastly, external factors such as regulatory changes or market shocks can cause stablecoins to depeg. A sudden change in the regulatory landscape or a significant market event can cause stablecoins to lose their peg and deviate from their intended value.

Burn means pulling tokens out of circulation supply by transferring them to an address that’s not owned by any business.

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