The bankruptcy of Silicon Valley Bank in the United States caused turmoil in the so-called traditional banking industry, and the USD coin (USDC) became unable to maintain its dollar peg. It could have a negative impact on the adoption of the coin and increase the push for regulation of cryptocurrencies.
Moody’s updated the comments published on March 16, citing the view that the USDC dipeg issue that occurred on March 10 could pose new challenges for fiat-backed stablecoins. It is shown. A company analyst notes:
“Many of the fiat-backed stablecoins have shown tremendous resilience and have weathered past challenges such as the FTX bankruptcy. Recent events such as Dipeg have exposed the stability limits of stablecoins as their issuers rely on a relatively small number of off-chain financial institutions.”
The sudden collapse of Silicon Valley Bank on March 10 was a significant risk event for Circle Internet Financial (USDC issuer), which held $3.3 billion in assets in the bank. As the price of USDC plummeted to about $0.87, the company implemented a USDC redemption, resulting in an outflow of approximately $3 billion from the company in three days.
According to the company, by the close of business on March 15th of the domestic banks, “almost all of the USDC’s mint and redemption requests have been processed, including outstanding ones.”
When the Federal Deposit Insurance Corporation (FDIC) announced a policy to fully protect deposits of Silicon Valley banks, the peg between the USDC and the US dollar quickly recovered. The company’s CEO, Jeremy Allaire, told Bloomberg on March 14 that the $3.3 billion in reserves (that had been deposited with Silicon Valley Bank) are now fully available.
Moody’s noted that the USDC regained its peg to the U.S. dollar, but only after U.S. regulators announced policies to protect unsecured deposits at Silicon Valley banks. “The USDC could have been inundated with selling and forced to liquidate its assets if regulators hadn’t issued a policy to protect deposits,” the firm’s analysts added.
“Given the current market volatility, it is possible that banks holding Circle’s assets have run on banks one after another, and that it has developed into a dipeg for stablecoins other than USDC.”
