US Dollar Coin (USDC), the second largest stablecoin by market cap, has recently suffered a significant drop in value, currently trading at 91 cents, according to data on CoinMarketCap.
This comes after the coin fell as low as 87 cents overnight, which is below its previous all-time low of 89 cents in May 2019. However, the coin has begun to recover as of Saturday morning.
The cause of this depegging is due to Circle, the issuer of USDC, disclosing that $3.3 billion worth of cash reserves backing USDC are still held at Silicon Valley Bank, which was shut down by California financial regulators this week after a bank run.
This disclosure prompted major crypto exchanges, such as Binance and Coinbase, to temporarily suspend USDC conversions, adding to the panic. Customers with USDC held on those exchanges are unable to get it out or convert it to something else and are nervously waiting to hear more from Circle or see USDC regain its peg.
Furthermore, USDC’s depegging has also triggered depegging by other notable dollar-pegged stablecoins, such as DAI, USDD, and USDP. DAI is at 93 cents as of Saturday morning, USDD is at 95 cents, and USDP is at 96 cents.
Dollar-pegged stablecoins are designed to remain “stable” in that they keep a constant price of $1. USDC was launched by Centre, a joint venture between Circle and Coinbase, and a USDC explainer page on Circle’s website says USDC is “always redeemable 1:1 for U.S. dollars.”
Circle is not the only crypto company impacted by the sudden collapse of Silicon Valley Bank. On Friday, a number of other companies and projects, including BlockFi, Avalanche, Proof, and Yuga Labs, revealed their exposure to SVB.
However, Circle is in a unique position among those names of being responsible for upholding confidence in a product touted as being always fully backed by cash held in reserves, and always redeemable for $1.
The depegging of USDC and other stablecoins has caused concern within the crypto community, with many wondering about the long-term viability of stablecoins and their claims to be fully backed by reserves. It remains to be seen how this situation will unfold and what impact it will have on the broader crypto market.
