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$3.3B of the ~$40 billion of USDC reserves remain at SVB
- deleted 4y ago[deleted]
- dgrin91 4y agoWhat are the chances this causes a run on USDC and a total cascading collapse of multiple crypto assets & platforms?
- xur17 4y agoThe good news is that USDC has 74% of their assets in short dated US treasuries (weighted average duration is 36 days). Even if they had to sell all of their treasuries TODAY, they'd only be looking at a ~0.4% haircut (assuming an efficient market for treasuries, which should be close to true). Definitely not a good situation, but they're in a lot better position than SVB.
- humanizersequel 4y agoI've also been under the (possibly incorrect) impression that the majority of Circle's dealings are with exchanges like Coinbase — parties who are probably willing and able to play some inside baseball in terms of dealing with duration mismatch and waiting out the feds. Edit: Yeah, they are very strict with who they interact with — individuals cannot exchange their USDC for dollars directly with Circle: https://www.circle.com/en/legal/acceptable-use-policy https://www.circle.com/en/legal/acceptable-use-policy.
- TacticalCoder 4y ago> I've also been under the (possibly incorrect) impression that the majority of Circle's dealings are with exchanges like Coinbase Circle belongs to Coinbase AFAIK. EDIT: ah I was wrong, after reading the comment below I googled and Coinbase+Circle created the "Centre" venture and they're 50/50 in it. And Centre is the company which launched the USDC stablecoin. So Coinbase doesn't own Circle but owns 50% of Centre.
- deleted 4y ago[deleted]
- TacticalCoder 4y ago> The good news is that USDC has 74% of their assets in short dated US treasuries (weighted average duration is 36 days). Do you have any idea what kind of yield they get on these and what happens to that money? I've never been able to find any info about that.
- xur17 4y agoThis link [0] is useful for getting context on what backs USDC, and this link [1] shows what backs the 74%. Looks like an average yield of ~4.4%? [0] https://www.circle.com/en/transparency https://www.circle.com/en/transparency [1] https://www.blackrock.com/cash/en-us/products/329365/ https://www.blackrock.com/cash/en-us/products/329365/
- shawabawa3 4y agoThey get 4.4% yield and that goes back to shareholders as equity in the company
- fallingknife 4y agoAlso, while USDC is like a deposit, legally it isn't. So they are under no obligation to produce USD in exchange on demand. They can (and have) shut redemptions. So they could just wait 36 days for those treasuries to mature instead of taking even that small 0.4% haircut.
- deleted 4y ago[deleted]
- evdubs 4y ago2%
- BeFlatXIII 4y ago1/50 chance of maximum popcorn? I'll take it.
- whoisjuan 4y agoPeople say that this SVB fail is isolated and idiosyncratic but I see a lot of stress in the system. If there's no solution to this debacle by Monday this is going to keep cascading with no predictable trajectory of where it ends.
- bitanarch 4y agoThe person who said SVB's situation is "idiosyncratic" is an employee of Wells Fargo - of course he would say that. Generally, banks run on confidence on the system - if any of the bank regulators or any of the major banks even flinch a little bit in front of the media right now, 10 more banks would probably fail tomorrow.
- brookst 4y agoDo you think it’s possible that someone working for Wells Fargo might actually know something about banking? Like, for instance, that 56% of SVB’s assets were long term fixed interest rate vehicles, compared to, IDK, 28% of Wells Fargo’s? [0] 0. https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu...
- SilasX 4y agoWhy do you think 28% vs 56% prevents insolvency when those assets took a 20% loss from rising interest rates?
- vkou 4y agoBecause held-to-maturity treasuries don't have to be marked down unless you start selling them, and because if you hold them to maturity, they will be worth exactly what they say on the tin. SVB's problem is that it can't hold them to maturity, it has to sell them today at firesale prices, because they already sold everything they have that's not marked held-to-maturity.
- panphora 4y agoWow, converting USDC to USD (fiat) on Coinbase is paused for the weekend, "while banks are closed" USDC is currently trading at .996 on CoinMarketCap (although some exchanges are reporting .98, .97, or even .95 -- although that's mostly smaller exchanges for now) Either way, people are taking a discount to get out of it and switching to USDT (now at a $72b market cap) or Bitcoin (hence the price rise) And Binance paused auto-conversion of USDC to BUSD
- turingfeel 4y agoUSDC/USD at Kraken is currently .925 with $174m 24h Volume.
- tempsy 4y agoi’m surprised this disclosure alone caused it to depeg this much
- deleted 4y ago[deleted]
- irjustin 4y agoWell the point is that it isn't supposed to matter. If they're backed 1:1 as claimed (BIG IF). Technically, anyone left holding a USDC should be allowed to go to Circle and say HEY give me $1 for each. Let's see how that goes. Stablecoins am I right?
- badloginagain 4y agoIf they lost $3.3b, it's what, .9175 : 1 ? So nominal price should be $.9175 on the dollar presumably. Add in another couple bips for the uncertainty. Edit: It would be actually hilarious if USDC failed because the banking system. I doubt it will happen, you'd have to see further contagion from the other banks Circle uses for their dollar reserves. I figure the tipping point for a bank run is quite high?
- brookst 4y agoI don’t think it’s remotely plausible that uninsured SVB deposited are just gone, $0 on the dollar. Absolute worst case, they might have lost 10%, or $330m, so .99175. It’s not like SVB was a Madoff scheme and the money is gone; it became insolvent because the current value of its investment vehicles couldn’t support 100% withdrawals.
- TacticalCoder 4y agoIt's totally incredible that Circle, owned in big part by Coinbase, a HN unicorn which always tried to do things legally, ends up probably losing $1bn (about 30% of of $3.3 bn) due to good old regular banks doing what they do best: making customers deposits disappear. Now Circle is sitting on $30 bn in short term US treasuries backing USDC and I don't think they're forced to give the yield back to people holding USDC, so Circle has to be minting something like, what, 1 billion yearly now that rates went up? So they may be able to get away with eating a $1 bn loss. Meanwhile the tether/Bitfinex fraud in the Bahamas is continuing to do just fine and its Circle/Coinbase/USDC that happen to be in trouble. Because of an actual bank unrelated to crypto.
- ursuscamp 4y agoWhy makes Tether a fraud?
- TacticalCoder 4y ago> Why makes Tether a fraud? They've been convicted of fraud. They had hundreds of millions seized from bank account of criminals which they helped launder money for. They cannot operate in NY anymore and the NYAG fined them. I think Canada banned these fraudsters too? They also sold Moonstone bank to SBF/FTX which illegally siphoned money out of the US to the Bahamas. Nothing smells of fraud as much as tether/Bitfinex. Not even Madoff.
- latchkey 4y agoHowever, today, USDT is looking pretty good in comparison.
- TacticalCoder 4y agoI don't know. Centre is publishing the individual short term US treasuries numbers of every single short term US treasury they own. They've got $9.8 bn at various US banks, minus potentially the loss on $3.3bn they may have to take now but even a $1bn loss and that'd still make USDC backed 0.975:1 or something. Not taking into account the insane yeld they're making on the $30 bn of short term US treasuries they have (for their clients, but I think the yields are for them). That compared to a bunch of shady people in the Bahamas, deeply tied to the SBF/FTX fraud... But yup, today, tether looks unaffected.
- charcircuit 4y agoIf they lost all of that USDC would depeg to $0.92. As of my comment it has already depegged and is worth $0.9921. Meanwhile Tether has is trading much higher than usual at $1.0294.
- piperswe 4y agoIt's already down to $0.9535, looks like the market's thinking it's all gone
- RealityVoid 4y agoI think the market is stupid on this one. I would buy USDC on a discount if I had the liquidity on hand. I have been wrong before, but this looks like an overreaction.
- evdubs 4y agoThis is likely an overreaction to trade down 10%
- charcircuit 4y agoNot necessarily. As more businesses start exchanging USDC for USD with Circle the ratio between the reserves and USDC will get worse and worse. If a bank run happens 3.3 billion will become a big percentage of the total market cap and USDC will go to $0. The value of USDC right now is a combination of how much of that $3.3 billion will be recovered, how likely people think a bank run on USDC is, and predicting what actions Circle will take to try and save this.
- shawabawa3 4y agoDo centre have equity to backstop the reserve? I'm not 100% sure how the centre/circle/coinbase partnership works
- csomar 4y ago
- qb 4y agoWhy wasn't Circle using deposit networks? Did they take out private uninsured deposit insurance? Circle's competitor Paxos is using IntraFi Network and Reich & Tang Deposit Solutions for BUSD according to their reports (https://paxos.com/wp-content/uploads/2023/03/BUSD-Monthly-Stablecoin-Reporting-February-2023.pdf https://paxos.com/wp-content/uploads/2023/03/BUSD-Monthly-St...) and has obtained insurance for most of their balances in excess of FDIC insurance limits.
- woeirua 4y agoUSDC has already depegged. Game over for USDC. We won't know what happens in the real world until next week, but this weekend is going to be interesting for crypto. Bets on which crypto exchange is going to shutter next?
- xtracto 4y agoDAI also depegged. Apparently DAI has 40% of its reserves in USDC... stupid kids.
- SilasX 4y agoWhile also being ~160% collateralized. I’d link more specific figures but the makerdao site, like most crypto projects, doesn’t make those figures easy to find. Edit: There you go: https://daistats.com/#/ https://daistats.com/#/ Disclaimer: somewhat motivated reasoning since I’ve left a standing order for DAI at 0.995 on an exchange, which was just filled this evening, in the expectation that DAI always returns to parity.
- lottin 4y agoWhich goes to show there's no such thing as a decentralised stablecoin, since they're all backed with other stablecoins that aren't decentralised.
- petesergeant 4y agoAssuming USDC is backed by the money it says it is, then it going to zero is incredible news for anyone who buys it post de-peg right? If the assets are there, and you buy USDC at 5c on the dollar, you’ll make 95c even if USDC has to entirely liquidate? I guess, assuming the assets are there, I don’t see why/how it would drop below that, or be finished, other than some volatility due to panic
- deleted 4y ago[deleted]
- DeathArrow 4y agoIf you borrow money from a bank, you have to cover your loan with something. If you fail to give the money back, they liquidate those assets and recover their money and interests. If you are borrowing the bank through deposits, why isn't the bank forced to cover the loan so you can recover your money if the bank fails to pay you?
- tome 4y agoThat's essentially what's happening now. The FDIC is working out what depositors get.
- UncleEntity 4y agoIf the bank pays interest they make that money by loaning money to someone. They don’t pay you to warehouse your money in the bank. With this is the assumption that they can’t immediately give you your money back because they don’t have it. Checking accounts are different so the presumption is that money is just sitting in the bank doing nothing because they can’t predict when it will be spent. Of course this isn’t how banks really work because reasons.
- peanut-walrus 4y agoHold on...Circle was just keeping $3.3B in regular deposits? Am I understanding this correctly? I'm not a treasury expert but this seems...insane?
- foepys 4y agoPutting everything into US treasury bonds is what sank SVB, so putting everything into AAA rated bonds isn't safe either.
- xuki 4y agoSVB bought long duration bonds, they could not wait until maturity to get the money back. Keep rolling short duration bonds would be less risky.
- quickthrowman 4y agoThe interest rate risk of a 10y t-note is a couple orders of magnitude higher than the interest rate risk of a 1 month t-bill, because of duration. USDC would have to wait just over a month for all of their t-bills to mature, SVB was looking at waiting 8 years. Massively different risk profiles.
- fallingknife 4y agoYou have to have liquid dollars in inventory to manage USD redemptions. Banks have to keep 10% of deposits on reserve at the Fed, so $3.3 billion in cash out of $40 billion is actually on the low side.
- shawabawa3 4y agoThe fed recently reduced reserve requirements to zero, so banks need exactly zero cash on hand to fund withdrawals shockingly And circle had ~$10B is cash at banks for redemptions, $3.3B of which in SVB
- throwayyy479087 4y ago
- IG_Semmelweiss 4y agoCurious on the back end treasury move: If circle had decided to stop using svb usd reserves and put it all back into a stablecoin even if it depegged > 1.00 wouldn't that have been the winning move? They obviously have more than 1 banking institution, so its not like they had no options What stopped them from exiting SVB via their own currency ?
- shawabawa3 4y agoAre you asking why circle didn't back USDC with USDC? It's back with dollars in bank accounts to fund redemptions, sadly $3B of which are in SVB. The rest (~30B) is in short term US treasuries (36 days average duration)
- IG_Semmelweiss 4y agoyes. Why would they not use their own USDC reserves to buy more USDC ? I suppose I dont know how the choice of what amount to keep in reserve is made, and who is deciding on bank institution(s) . Because, even if the price of the USDC temporarily go over 1, it would be fine considering the situation ?