USDC: Was Everyone Just As Blind As Me?
March 18th, 2023

Let me TL;DR summarize the past weekend’s events:

Mass panic hits SVB.

SVB begins to go down.

Others are next.

Mass panic hits all markets.

USDC de-pegs.

It’s that last italicized item that put me into a panic. I thought of all stablecoins, USDC (USD Coin) should withstand a large bank run like we just saw happen.

But it didn’t. Saturday around 9pm ET, we started seeing USDC begin to de-peg. I honestly was a bit in shock that it was happening, especially after all that we’ve heard about it’s resilience.

I was just at ETHDenver a couple of weeks ago, at the Circle (creators of USDC) booth talking to them about what makes a stablecoin actually stable. The bottom line they made was over-collateralization and transparency as keys to a strong stablecoin.

From the WSJ: “Circle holds $9.7 billion of its USD Coin reserves in cash and $32.4 billion in short-dated government securities — ”.

I believe those numbers are still below what the true number is, however, that should give an idea of how collateralized USDC is.

That is a massive number and it’s worry that the mass panic caused such a de-peg.

Another point Circle made was transparency. And it’s true that Circle discloses where their assets are held. However, which other top stablecoin is not a big fan of transparency and weathered the storm well above USDC? That’s right, USDT (USD Token).

USDT, which is not very transparent and being a European-backed USD stablecoin, they did not have very much exposure to U.S. banking entities and were a safe harbor for USDC-refugees. USDT went up to as much as $1.06 at one point during this time.

Eventually, U.S. officials ensured banking victims will be made whole, Circle ends up having access to their reserves and is able to bring USDC back up to peg, the markets have been favorable since. All is good and life moves on.

However, now I don’t know if my plan of using stablecoins works anymore. The whole point is having an intermediary between volatile tokens, in which I can preserve my gains (or losses) without risk.

So I guess we all will just have to wait and see what happens when the next major panic occurs…

Written by: nikethereum.eth / Medium / Mirror

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