The decline of USDC created fear among crypto investors. However, to the surprise of many, it regained its semblance in a short time.
After the collapse of Silicon Valley Bank, USDC cryptocurrency fell sharply and lost parity with the dollar, fall because circle (the company that issues the digital currency) had $3.3 billion in deposits in the entity: if they could be retrieved, there would be more USDC than dollars in the bank account, breaking the 1:1 ratio.
The incident took place on Friday when US banks were closed. weekend warm up USDC: trades at u$s0.88 per unit, however, regained its parity with the dollar the following Monday, Becoming one of the fastest recoveries in the crypto market.
USDC: Why this crypto dollar fell
Gaston Laver, Marketing Director of Skylo Argentina confirms this iProUP He 2023 is a year focused on the transparency of the crypto world.
“That’s because in 2022 a crash in the ecosystem. Transparency was what failed and a wave of rumors was generated that brought down a project like Terra. however, The difference between Terra and USDC was that Terra did not show transparencyWhereas the latter were able to demonstrate it,” says the expert.
In what sense. Circle reported that 8% of its reserves were held by Silicon Valley Bank. But, according to Laver, this was not due to a “speculative” purpose, but to avoid hiding data from its customers.
“Bearing in mind that the crypto market operates 24 hours a day, 365 days a year, and banks are regulated by a ‘schedule’, A ‘run’ was created based on FOMO ,fear of missing out) and comments on social networks that loss of equality“, experts say.
In this frame, Circle notes that the exit will be followed by the necessary liquidity to withstand the heavy withdrawals on Monday, giving USDC great strength., An impossible maneuver during the weekend for technical reasons (banks do not work).
Federico Est, crypto expert and director of Claros, points out iProUP He USDC has value in its asset store, Bank deposits, cash and US Treasuries,
“The main reason it fell was that, after the collapse of Silicon Bank, There were big questions about the impact on USDC reservesBecause some of them were in that unit. Many savers panicked and resorted to massive sellingFears that were neutralized when the US announced that it was going to “rescue” the deposits of people and companies in that unit.
DeFi Education and Ethereum researcher Pablo Sabatella explains iProUP He Part of the decline was due to market calculations, USDC44 billion against support of $40.5 billion,
USDC: How did you achieve your quick recovery?
Laver states thatthe similarity isConsidering business days, never broke, but went through a weekend ‘storm’ Because of the rumor that many people were looking to withdraw their money on Friday or Saturday.”
With respect to the reasons for recoveryexperts agree that it was based on two facts,
- The transparency that Circle showed in the event of a decline
- Defense of SVB announced by the US government.
USDC’s strength is based on its reserves in deposits and bonds in addition to the transparency of Circle, the company that issues it.
Laver comments that, Thanks to what happened, the strength and solidity of the currency was demonstratedBacked by US Treasury bonds and diversified into banks.
“because of this reason, From Siklo we chose this coin as representative of the company And we look very positively at what happened: It was shown that it has sufficient support“They’re standing outside.
USDC Fall and Rise: What Could Happen to Other Digital Dollars?
for the lever, USDC’s Decline Holds an Important Lesson for the Rest stable coinsSince an exogenous event such as a bank bankruptcy can affect the parity of a digital currency.
“This also happens in traditional financial systems, such as the currencies of different countries in relation to the dollar, oil, gold, among others. When parity occurs, fundamentals On both sides”, highlighted the expert.
For Sabatella, there are fears that a stablecoin will go to 0 (as happened with UST, Terra’s cryptocurrency). And he says it’s important to understand the difference: “UST was a non-collateralized stablecoin, meaning no reserves., It had a mechanism that arbitrated its price against another asset (the Luna), creating a market that incentivized that the price be equal to the dollar”.
He insisted that the process’s “main disadvantage was that, If your main asset has declined sharply (How did this happen), its stable currency may lose its parity and fall to 0“, Add.
DAI is another reliable cryptocurrency: it’s decentralized, hypercollateralized, and diversified across its reserves
Instead, it highlights Collateralized in major cryptocurrencies such as USDT and USDCi.e, Backed by assets such as US Treasury bonds or dollar deposits,
,DAI, instead of having a centralized company behind it (as in the case of Circle on USDC or Tether on USDT), is in a smart contract uploaded to the Ethereum network, DecentralisationAnd it is more collateralized with other assets like bitcoin and ether”, highlighted the expert.
However, when USDC fell, DAI also fell slightly in value, as part of its reserves are held in USDC. Federico Este pointed out that all cryptocurrencies carry a level of risk and that, While stablecoins such as USDT and USDC are backed, the debate is how backed they are.,
,In case of USDC, it is audited by Deloitte, Assuming it has support, it can never fall to 0, because 100% supported“he points out.
Instead, Sabatella comments that “There are some doubts in the case of USDT: reserves are not clear It is not owned nor audited as USDC”.
“In that sense, it can’t drop to 0, because they have a backup, however, In the event of a run it will be important to see how much money they have to support parityhe warns.
While it is nearly impossible for a collateralized stablecoin to fall to 0 as UST did, all digital currencies have some risk associated with them: The level of transparency they manage is crucial On the equality of these properties.