Hi HODLers,
The dominoes are still moving and there might be other organisations that end up falling.
Once deemed the most reliable stablecoin: USDC is under the spotlight as U.S.-based stablecoin issuer Circle held a part of its USDC stablecoin’s cash reserves at Silicon Valley Bank.
This can be seen in the firm's latest attestation (as of Jan. 17, 2023).
USDC is the 2nd argest stablecoin on the market, with a $43 billion circulating. It is backed by cash deposits and US-Bonds.
Full list of Banks where Circle held deposits
- Bank of New York Mellon, Citizens Trust Bank,
- Customers Bank,
- New York Community Bank (a division of Flagstar Bank, N.A.),
- Signature Bank,
- Silicon Valley Bank and
- Silvergate Bank
Circle also keeps some part of USDC reserves in a dedicated BlackRock fund.
The two last ones are now in the process of being liquidated. Signature Bank is also under strong pressures as it is a regional bank linked to tech and the Bay Area.
I have seen a lot of speculation around the amount of assets that Circle had in SVB (from $3bn to $7bn) but these are just speculations and probably FOMO. Nevertheless, a sizeable amount of their capital must be in these 2 now failed banks. This is worrysome for USDC possibility to be redeemed.
How things move fast in crypto... A few weeks ago, $USDT was the least trustworthy and now it seems they might be the safest.
USDC Price Chart
I am not going to lie, I have taken advantage of this situation to short USDC as the risk-reward is clearly positive. I added short positions up to $0.992 and I have been deleeraging around $0.987.
USDC might need a haircut for a while before this is figuring out and worst case scenario, it goes back to the PEG.
FUD or real concerns?
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Just as Tether never suffered any real consequences by not proving its reserves, I don't know why Circle would be any different. I doubt many people are converting their USDC back to real dollars anyway, rather they prefer to use it just to trade in and out of the market. That said, the news itself could cause the value of the stablecoin to fall, at least temporarily.
People did not convert because most people thought Tether was fine and provided enough evidence.
In the USDC case, we now know that they have a whole and are not backed 1/1. The question is how big is the hole and if people are going to ask to redeem to real USD to get the premium (since it is quoting at $0.98).
But I agree that most users will never redeem. Only arbitragers
I think they are real concerns but there isn't much we can do about it. After all, that money needs to be somewhere otherwise there will be left with someone holding the bag.
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Damn bro. They are fucked. Just converted all of my USDC to Eth and Matic.
It will take time but I believe most companies/people will get 80%+ of their funds in the coming months/years after the process finishes. Some might need it now though...
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In my opinion, I agree that Circle's deposits and compliance practices should be scrutinized and reviewed by regulatory authorities to ensure they are operating within the bounds of the law. As a stablecoin issuer, Circle plays a significant role in the cryptocurrency ecosystem and has a responsibility to comply with AML and CTF laws to prevent illicit activities such as money laundering, terrorism financing, and fraud.
At the same time, it is important for regulators to take a balanced approach and ensure that their actions do not stifle innovation or hinder the growth of the cryptocurrency industry as a whole. The regulation of stablecoins and other cryptocurrencies is a complex issue, and it is essential for regulators to work with industry participants to develop effective and reasonable regulations that protect consumers and prevent criminal activity, while also allowing for innovation and growth in the sector.
In summary, while it is important for Circle's deposits and compliance practices to be reviewed and scrutinized, it is equally important for regulators to take a balanced and collaborative approach to regulation in the cryptocurrency industry
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