Black Swan Hits USDC Stablecoin After Silicon Valley Bank Collapse – zoohousenews.com
- March 16, 2023
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(Natural News) After news that Silicon Valley Bank (SVB) had collapsed, the cryptocurrency world’s second-largest “stablecoin,” USDC, plummeted in value before later rebounding closer to its intended $1 peg.
Circle Internet Financial Ltd., which operates USDC and banks at SVB, has pledged to cover any shortfalls in the $3.3 billion in reserves it holds at the now-closed bank.
“USD Coin, a key component of crypto markets, surged as high as $1 and was trading at 98.2 cents in Tokyo as of 10:50 a.m. Sunday,” Bloomberg reported. “The coin had previously achieved less than 85 cents in a depeg that sent shivers through digital assets.”
“Circle reiterated that its stablecoin, also known as USDC, is fully backed by $42.1 billion in cash and US Treasuries. The company said $3.3 billion in outbound remittances at Silicon Valley Bank, which were initiated on Thursday, have yet to be processed, but expressed confidence in U.S. regulatory efforts to deal with the overall situation. “
(Related: Remember the Tether stablecoin crisis that occurred after FTX collapsed?)
Stablecoin volatility spreads to Dai and Pax Dollar after SVB implosion
Because it’s unclear if SVB will be able to return “100 percent” of lost money, Circle has told its customers that such a return “might take some time.” In this case the company:
“…will stand behind USDC as required by law under the Stored Value Money Transfer Regulations and will use Company resources to cover any shortfalls, involving outside capital as appropriate.”
Stablecoins, in case you are unfamiliar with them, are designed to retain roughly the same value as the thing they are tied to. In this case, USDC is pegged to the Federal Reserve Note, which is worth $1 (whatever that means now).
USDC crashing like this once again proves, just like Tether before it, that stablecoins are anything but stable. This is especially true when the reserves that support them disappear, as in the case of Circle’s holdings in the now-defunct SVB, which has since become the FDIC (Federal Deposit Insurance Corporation) Deposit Insurance National Bank of Santa Clara.
“USDC’s volatility, said to be one of the safest assets in crypto at a constant $1 value, had spread to other stablecoins like Dai and Pax Dollar, but they were also edging closer to their pegs,” revealed Bloomberg .
“Top stablecoin Tether, or USDT – whose reserves were previously under scrutiny – said on Friday it has no exposure to Silicon Valley Bank and has held steady at $1 or more.”
Spencer Hallarn, a derivatives trader at investment firm GSR, commented on the matter, claiming that the USDC has become unexpectedly volatile because people “just want to freak out and get out of the USDC.”
Some investors, he added, have moved to Tether “as a temporary hideaway” while waiting for this all to end, while others “count for likely disruption and value buying.”
The situation at SVB is now being described as a “black swan failure” in the US financial system, which is begging for a bailout amid threats of “broader impact on businesses, banks and entrepreneurs”.
“Stablecoins are designed to hold a fixed value against another, highly liquid asset like the US dollar,” Bloomberg explained.
“Some, like Circle’s, are backed by cash reserves and bonds. Investors often park funds in stablecoins when switching between crypto trades or accessing blockchain-based financial services.”
“USDC has a circulating supply of approximately 41 billion tokens with a market value of approximately $40 billion, data from CoinGecko shows. billion dollars [sic] Value of the token have been redeemed by traders since Friday.”
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