USDC is managed the Centre consortium, which was founded by Circle and includes Coinbase as a member.
Circle held around $3.3 billion in Silicon Valley Bank, leading to a run on USDC which resulted in it trading for as little as $0.95 on some exchanges today (Mar 10, 2023). This represents around 30% of USDC's cash reserves and 7% of its total reserves. The balance of reserves are held in T-Bills, which are liquid and typically can only be traded during market hours. Coinbase itself has around $2B of USDC on hand. Circle's rumored exposure to Silvergate's collapse is also a concern.
If more than $7.8B of USDC were to be liquidated over the weekend, USDC would be effectively insolvent. Freezing trades until the market reopens limits this. USDC should rapidly stabilize due to being backed by very liquid hard assets, but it will probably lose significant marketshare to Tether.
There's something deeply ironic about a flight to safety in the form of Tether, which has famously been described as being "quilted out of red flags".
But if you can't redeem it and it's not backed by anything remotely approaching normal assets, I guess you can't have a bank run on it either... until the music stops and the insiders propping it up run out of chairs.
Can't help but revel in the fact that these crypto ponzi schemes are so dependent on the very banks all the cryptobros denounce, as evil holdovers from the past that will be obsoleted by their scam tokens (that no one outside their bubble even knows how to use).
It's so ridiculous I just have to kind of admire it. It's like a cathedral of human hypocrisy.
It was all fun and games while the crypto bubble was inflating. You basically could do no wrong, any mismanagement would be hidden away by the exponential appreciation of the underlying assets; just hodl until the next bull run and everything would be fine again.
When things stabilize and start going down, it's like the morning after the frat-party, bad things come to light. Crypto is fundamentally a negative sum game, it takes enormous resources to run and has generated a large number of self-minted millionaires that have cashed out and lamboed their earnings. There is very little actual marketable utility that crypto provides that could cover these large outlays, perhaps with the exception of facilitating money laundry and illegal transactions. I guess that's a business, but (hopefully) not a multi-trillion business suggested by the bubble's peak.
So it's inevitable the game must end with someone holding the bags.
The balance of reserves are held in T-Bills, which are liquid and typically can only be traded during market hours.
Ok I'll buy that if you or I wanted to sell treasury bills, but... if a company needs to liquidate $10B of treasury bills over the weekend, can't they just call up the CEO of JPMorgan and say "hey we'll give you 10 basis points over Monday's 9AM rate" and make a deal happen?
> Circle held around $3.3 billion in Silicon Valley Bank, leading to a run on USDC which resulted in it trading for as little as $0.95 on some exchanges today (Mar 10, 2023).
It dipped as low as .82 on Gemini. I used the chance to buy some to settle a debt denominated in USDC on Compound, though I haven’t yet paid it back because transaction fees on the ethereum network surged too.
Similar to SVB, from what I understand. SVB parked several billion in treasuries when rates were at ~1.6%, when interest rates went up, that portfolio drew down, they exited with a loss, this triggered a run.
So if Circle has 70% of its reserves in T bills, they possibly took a market to market loss too, depending on how they were hedged.
(Disclaimer: i have not seen SVB balance sheet, nor Circles.)
So USDC is currently trading at $0.93. Which, if you believe in Coinbase, is free money. And if you don't, then its very bad news for the company and possibly worse news for the banks that are keeping the USDC reserves, because they are about to have a massive bank run on monday.
It's only free money if the probability of depeg/collapse/bankruptcy is zero. One thing I've learned from Anchor protocol, Celsius, FTX, etc: The probability is never zero.
Well, a free 8% return over a weekend if all goes perfectly.
Interestingly Tether also reacted to this news by going up to $1.03 briefly. That's not really good either, but it makes sense as a symmetric thing. It'd be an arbitrage opportunity except the market is so broken you can't execute it reliably.
They will return to peg all right, just find more money, not a big deal. Too lucrative a cash cow - get $44B of deposits and ain't gotta pay a lick of interest.
Even crypto can't avoid the Impossible Trinity. Free movement of capital, a fixed exchange rate, and a steady money supply: you can only have 2 at once.
That’s kind of amusing. By using a traditional bank to store their gold standard bullion, they had exposure to centralized banking risk, which was realized, and caused the crypto to get locked in.
The crypto people can take a W on this one, though. USDC transfers still work, so there's no cash flow problem... as long as you can buy your tomatoes with USDC, this won't cause you problems.
Coinbase recently "unified" USD and USDC on Coinbase Exchange, trying to pretend they are the same thing. Absolutely boneheaded move. I expected it to cause problems for them eventually, but I'm surprised it was so soon...
If coinbase had kept 7% of their customers’ dollars in an account at SVB, those would be in the same situation though coinbase might have been able to dig into equity to make customers whole.
So many people were expecting it would be BUSD that would de-peg, and now it's USDC, which was considered to be among the safest and safest from regulatory pressure. Goes to show how the consensus is often wrong and how hard these things are to predict.
> Goes to show how the consensus is often wrong and how hard these things are to predict.
Seems like everyone is just making things up. I'm not sure of the split between "I'd like something to be true" and "I'd like someone else to think it's true".
Of course they wouldn’t have exposure to a bank in the US. There’s a reason that Tether has to do business with the more dodgy kind of offshore banks… Their exposure to any banks is likely far, far smaller than their claimed cash reserves, so it’s unlikely to be a bank crash that stops the Tether musical chairs…
Tether has lots of experience in this field. They were "pioneer" and they went through a lot worse: Tons of FUD, the Bitfinex exchange hack, lawsuits, bank runs etc...
In short, they are battle and stress tested to the maximum.
Crypto was supposed to liberate you from the traditional banksters. Instead it’s an impenetrable smokescreen where you’ve got uninsured credit risk with institutions in Silicon Valley and the Bahamas and who knows where, and you won’t know until the edifice cracks and your money is stuck. Not a terrific improvement.
Of course the Bitcoin maximalists will shake their heads, mutter about self-custody, and then go on conducting their actual finances in dirty fiat because Bitcoin is nearly impossible to use for anything that people actually want to do.
Don’t have any horses in this race, but this feels like a straw man. Getting told to go die by a centralized exchange is exactly the kind of problem that crypto solves. The trouble is a ton of web3 startups (like coinbase) worked to undo this feature to improve usability. Pretty much every crypto person I know who has been in it for more than 5 years will insist no keys no coins. A lot of the innovation in web3 consisted of pulling back the decentralization inherent in a lot of blockchains.
I wonder how banks being closed is impacting Coinbase's willingness/ability to redeem USDC for USD.
Since Coinbase can (at least in the US, to my knowledge) also not transfer any USD out on the weekend, shouldn't it be risk-free to take on any USD liability over the weekend, at least when considering USDC itself risk-free?
I'd call it stable as long as everybody who wants to trade their cryptocoins for real money can still get their dollars out. If that's the case, you can sell the cryptocoins online for less money if you want, but that'd be a bad sale because you're essentially giving up 10% of the value for no. Good reason (at the time of writing, value will fluctuate).
If this panic turns out to be nothing and the value will recover, some people panic trading right now are going to be at a loss. If trading in tokens for dollars doesn't come back spoon, the value may drop more and the panic sellers may be the ones that made the right choice by selling early.
The stability now hinges on whether or not cryptocurrency can be turned into real currency. At the moment, conversions are dropped, so it makes sense that the value has dropped. I don't believe for a second that this has to do anything with "banks closed during the weekend", I'm assuming the people behind the platform are now trying to figure out how to get liquidity with billions tied up in a shut down bank for the foreseeable future (or forever if SVB turns out to be insolvent after all). Maybe they can sell shares or trade other kinds of cryptocurrency reserves to make up the difference so exchanging USDC for real money can continue (probably bringing the price back up to a dollar immediately), maybe they can't and they're doomed.
If you have faith in the stablecoin, this may be the right moment to basically buy dollars for a 10% discount. If you don't and you have some money tied up in crypto exchanges, this is the moment to consider getting your money out before the impact of the depeg spreads.
If they can get enough real dollars to fulfil the demand, this may just prove that this is a viable mechanism, showing how stablecoins can survive with a significant amount of their real money inaccessible. It ain't over till the fat lady sings!
Just because you can't trade it 1:1 doesn't mean it is not stable. The only question is whether you'd still be able to redeem it 1:1 for USD in the future or not. This has happened before with Tether and they were able to service a huge bank run not so long ago.
Is the only way to make a true stablecoin is to create your own bank to hold the assets of the stablecoin?
The problem is a stablecoin holds reserves in a bank which the bank is then investing in non liquid assets which puts you in the current predicament. On paper USDC had these cash reserves, but in reality if you follow the trail all the way down you find out that those cash reserves are actually MBS’s and 10 year bonds.
A stablecoin which operated it’s own bank could guarantee that all reserves are actually being held in cash ready to wire transfer at a moments notice.
Haha, after a decade of FUD, turns out USDT were more cautious and diligent with their funds, than the "regulated and transparent" USDC. Still risky, of course. No substitute to holding proper BTC.
> turns out USDT were more cautious and diligent with their funds
This refers to facts not in evidence.
The potential collapse of USDC is not a reflection on the Tether fraud in any way. Outcomes in one are not evidence for or against anything in the other and it is a mistake to conflate them.
Note that this is not because of mismanagement at Circle. This is because these banks bought 10yr bonds and MBSes and now that there is a bank run they have to take huge losses if they have to liquidate. Circle in fact managed this really well IMHO with 75% backing in 36 day t-bills that can be liquidated fast.
Circle/USDC apparently was the one that told SEC to go after Paxos/BUSD. USDC depegs and then Coinbase halts USDC/USD trapping people to either sell for a loss or wait for a miracle everything works out. The irony of it all.
Even if USDC eventually manages to regain the peg, it seems likely this will cause major long term damage to adoption. Who wants to hold a "stablecoin" that can sit at a 7+% discount to par for over a day?
Seriously, just a tweet? Not even press release, let alone Q and A for breaking one of the core promises of the company. While I still think the deposits are safe, Coinbase should outline their worst case plan on this.
BTC crashed, stable coins crashing . Financialization means new, unforeseen risks are constantly showing themselves due to the intricacy of the interconnected system. Failure of stable coins will probably lead to sub 10k $btc for sure. Already BTC crashing now on this news after an attempt to rally. FTX was just $20 billion, stable coins combined are $150 billion....
Startup A had 10M in SVB.
Startup B had 10M in USDC.
Startup A is probably closing down, let's hope not and wait until Monday for a bailout.
Startup B cut losses and walked away with ~9.2M, on a weekend.
There is something to learn here about counterparty risk and outdated regulations/legislations. SVB from a time when no credit cards existed, USDC from a world where the iPhone had already been invented.
You can hedge the risk of your own bank failing by purchasing put options on its stock, assuming it trades publicly and has an active options market. I don’t know anyone who has ever done that, but it’s a neat idea.
I think Stablecoins systems are more resilient than traditional banks in bank runs.
In Case of a traditional Bank Run (SVB), pulling the money out is the overwhelmingly best thing to do due to game theory logic. This means once a bank run starts, there's no stopping it.
But in Stablecoins, the coin "depegs", this gives people a reason to actually buy and support the coin if they think insolvency won't happen.
Circle/USDC fooked around Paxos/BUSD and now they are finding out. All the xenophobia towards Binance showed who the real ones are. CZ is Canadian too and grew up there.
kersplody|3 years ago
Circle held around $3.3 billion in Silicon Valley Bank, leading to a run on USDC which resulted in it trading for as little as $0.95 on some exchanges today (Mar 10, 2023). This represents around 30% of USDC's cash reserves and 7% of its total reserves. The balance of reserves are held in T-Bills, which are liquid and typically can only be traded during market hours. Coinbase itself has around $2B of USDC on hand. Circle's rumored exposure to Silvergate's collapse is also a concern.
If more than $7.8B of USDC were to be liquidated over the weekend, USDC would be effectively insolvent. Freezing trades until the market reopens limits this. USDC should rapidly stabilize due to being backed by very liquid hard assets, but it will probably lose significant marketshare to Tether.
UPDATE: USDC Liquidity pools on other exchanges are becoming completely drained, pulling down the peg. https://www.reddit.com/r/CryptoCurrency/comments/11oaz39/coi...
rippercushions|3 years ago
But if you can't redeem it and it's not backed by anything remotely approaching normal assets, I guess you can't have a bank run on it either... until the music stops and the insiders propping it up run out of chairs.
mtlmtlmtlmtl|3 years ago
It's so ridiculous I just have to kind of admire it. It's like a cathedral of human hypocrisy.
cornholio|3 years ago
When things stabilize and start going down, it's like the morning after the frat-party, bad things come to light. Crypto is fundamentally a negative sum game, it takes enormous resources to run and has generated a large number of self-minted millionaires that have cashed out and lamboed their earnings. There is very little actual marketable utility that crypto provides that could cover these large outlays, perhaps with the exception of facilitating money laundry and illegal transactions. I guess that's a business, but (hopefully) not a multi-trillion business suggested by the bubble's peak.
So it's inevitable the game must end with someone holding the bags.
cperciva|3 years ago
Ok I'll buy that if you or I wanted to sell treasury bills, but... if a company needs to liquidate $10B of treasury bills over the weekend, can't they just call up the CEO of JPMorgan and say "hey we'll give you 10 basis points over Monday's 9AM rate" and make a deal happen?
SilasX|3 years ago
It dipped as low as .82 on Gemini. I used the chance to buy some to settle a debt denominated in USDC on Compound, though I haven’t yet paid it back because transaction fees on the ethereum network surged too.
DAI fell below .90 even though it’s so overcollateralized that even the 100% loss of SVB funds shouldn’t make it insolvent: https://news.ycombinator.com/item?id=35105876
>USDC Liquidity pools on other exchanges are becoming completely drained, pulling down the peg
Nit: liquidity pools (at least of the kind described in the link) are decentralized and don’t live on an exchange.
drcode|3 years ago
(I'm no expert though, correct me if I'm wrong)
Edit: Parent comment is now correct
ashwagary|3 years ago
xtracto|3 years ago
xbruteforce|3 years ago
DAI has quite a substantial percentage of USDC in their reserves as well.
We could witness another death spiral. Let's see how events turn out to be.
carlsborg|3 years ago
Similar to SVB, from what I understand. SVB parked several billion in treasuries when rates were at ~1.6%, when interest rates went up, that portfolio drew down, they exited with a loss, this triggered a run.
So if Circle has 70% of its reserves in T bills, they possibly took a market to market loss too, depending on how they were hedged.
(Disclaimer: i have not seen SVB balance sheet, nor Circles.)
kart23|3 years ago
https://coinmarketcap.com/currencies/usd-coin/
verteu|3 years ago
NelsonMinar|3 years ago
Interestingly Tether also reacted to this news by going up to $1.03 briefly. That's not really good either, but it makes sense as a symmetric thing. It'd be an arbitrage opportunity except the market is so broken you can't execute it reliably.
EVa5I7bHFq9mnYK|3 years ago
bandrami|3 years ago
paulpauper|3 years ago
there are no freebies in finance. no one knows what is left. probably less than many think.
Waterluvian|3 years ago
It’s like some sort of wacky deadlock condition.
CGamesPlay|3 years ago
modeless|3 years ago
dan-robertson|3 years ago
unknown|3 years ago
[deleted]
paulpauper|3 years ago
adhesive_wombat|3 years ago
Seems like everyone is just making things up. I'm not sure of the split between "I'd like something to be true" and "I'd like someone else to think it's true".
Grimburger|3 years ago
stephen_g|3 years ago
blitzar|3 years ago
It turns out if you have no assets you have no exposure.
csomar|3 years ago
In short, they are battle and stress tested to the maximum.
NelsonMinar|3 years ago
Tether didn't hold its peg though; it went up to about $1.03. For a stablecoin going up is as bad as going down. https://coinmarketcap.com/currencies/tether/
runeks|3 years ago
How do you know?
coffeebeqn|3 years ago
pavlov|3 years ago
Of course the Bitcoin maximalists will shake their heads, mutter about self-custody, and then go on conducting their actual finances in dirty fiat because Bitcoin is nearly impossible to use for anything that people actually want to do.
blululu|3 years ago
latchkey|3 years ago
coffeebeqn|3 years ago
bandrami|3 years ago
lxgr|3 years ago
Since Coinbase can (at least in the US, to my knowledge) also not transfer any USD out on the weekend, shouldn't it be risk-free to take on any USD liability over the weekend, at least when considering USDC itself risk-free?
elAhmo|3 years ago
How many of them need to fail before it is clear this is not a viable mechanism?
jeroenhd|3 years ago
If this panic turns out to be nothing and the value will recover, some people panic trading right now are going to be at a loss. If trading in tokens for dollars doesn't come back spoon, the value may drop more and the panic sellers may be the ones that made the right choice by selling early.
The stability now hinges on whether or not cryptocurrency can be turned into real currency. At the moment, conversions are dropped, so it makes sense that the value has dropped. I don't believe for a second that this has to do anything with "banks closed during the weekend", I'm assuming the people behind the platform are now trying to figure out how to get liquidity with billions tied up in a shut down bank for the foreseeable future (or forever if SVB turns out to be insolvent after all). Maybe they can sell shares or trade other kinds of cryptocurrency reserves to make up the difference so exchanging USDC for real money can continue (probably bringing the price back up to a dollar immediately), maybe they can't and they're doomed.
If you have faith in the stablecoin, this may be the right moment to basically buy dollars for a 10% discount. If you don't and you have some money tied up in crypto exchanges, this is the moment to consider getting your money out before the impact of the depeg spreads.
If they can get enough real dollars to fulfil the demand, this may just prove that this is a viable mechanism, showing how stablecoins can survive with a significant amount of their real money inaccessible. It ain't over till the fat lady sings!
edem|3 years ago
__turbobrew__|3 years ago
The problem is a stablecoin holds reserves in a bank which the bank is then investing in non liquid assets which puts you in the current predicament. On paper USDC had these cash reserves, but in reality if you follow the trail all the way down you find out that those cash reserves are actually MBS’s and 10 year bonds.
A stablecoin which operated it’s own bank could guarantee that all reserves are actually being held in cash ready to wire transfer at a moments notice.
EVa5I7bHFq9mnYK|3 years ago
sneak|3 years ago
This refers to facts not in evidence.
The potential collapse of USDC is not a reflection on the Tether fraud in any way. Outcomes in one are not evidence for or against anything in the other and it is a mistake to conflate them.
edem|3 years ago
wesapien|3 years ago
NelsonMinar|3 years ago
unknown|3 years ago
[deleted]
VagueMag|3 years ago
vishal0123|3 years ago
aliljet|3 years ago
marcopicentini|3 years ago
In the balance sheet a cannot find the unrealized loss
timcavel|3 years ago
[deleted]
dvh|3 years ago
paulpauper|3 years ago
seydor|3 years ago
Claudeppl90|3 years ago
Startup A is probably closing down, let's hope not and wait until Monday for a bailout.
Startup B cut losses and walked away with ~9.2M, on a weekend.
There is something to learn here about counterparty risk and outdated regulations/legislations. SVB from a time when no credit cards existed, USDC from a world where the iPhone had already been invented.
ttul|3 years ago
prakhar897|3 years ago
In Case of a traditional Bank Run (SVB), pulling the money out is the overwhelmingly best thing to do due to game theory logic. This means once a bank run starts, there's no stopping it.
But in Stablecoins, the coin "depegs", this gives people a reason to actually buy and support the coin if they think insolvency won't happen.
wesapien|3 years ago