The world of cryptocurrencies has been in turmoil in recent days as the USDC stablecoin, the second-largest by market cap, experienced a sharp drop in value. Despite being designed to remain constantly priced at $1, USDC is currently trading at just 91 cents, with its value having fallen as low as 87 cents overnight.
This is due to disclosure by Circle, the issuer of USDC, that $3.3 billion worth of the cash reserves that back the stablecoin remain held at Silicon Valley Bank (SVB), which was shut down by California financial regulators this week after a bank run.
This revelation has caused a panic among crypto traders and investors, leading major exchanges Binance and Coinbase to temporarily suspend USDC conversions.
As a result, customers with USDC held on those exchanges are unable to withdraw or convert it to other cryptocurrencies. This has left them nervously waiting for further news from Circle or for USDC to regain its peg.
The depegging of USDC has also triggered depegging by other notable dollar-pegged stablecoins, including DAI, USDD, and USDP. While DAI is currently trading at 93 cents, USDD is at 95 cents, and USDP is at 96 cents.
This turn of events has dealt a blow to the confidence of investors in dollar-pegged stablecoins, which are meant to be stable and keep a constant price of $1. USDC was launched by Centre, a joint venture between Circle and Coinbase, and its explainer page states that it is “always redeemable 1:1 for U.S. dollars.”
However, Circle’s disclosure of its exposure to SVB has shattered this confidence, leaving investors uncertain about the future of USDC and other stablecoins.
The impact of SVB’s collapse is not limited to USDC and other stablecoins. On Friday, several other crypto companies and projects revealed their exposure to SVB, including BlockFi, Avalanche, Proof, and Yuga Labs. However, Circle’s position is unique, as it is responsible for upholding confidence in a product that is touted as being fully backed by cash held in reserves and always redeemable for $1.
The depegging of USDC and other stablecoins underscores the risks inherent in cryptocurrencies, which are subject to sudden market swings and fluctuations.
Investors must remain vigilant and informed about these risks, as well as the specific risks associated with individual cryptocurrencies, in order to make informed decisions about their investments.