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USDC depegs as Circle confirms $3.3B stuck with Silicon Valley Bank
- im3w1l 4y agoMy instinctive thought is that the responsible thing to do here is to pause redemptions for a while to see how the SVB thing plays out and then lower the face value of the usdc to align with their reserves.
- curiousgal 4y ago> reserves So likely 0?
- lkbm 4y agoThe thing that caused this was the news that they have at least $3.3B in reserves. SVB uninsured deposits aren't dropping to zero, or anywhere close.
- im3w1l 4y agoThe article mentions that only 3.3B out of 40B of reserves were in SVB in the first place. I'm not too well-read on the SVB situation but some of those 3.3B may additionally be recovered.
- koolba 4y agoLowering face value is not an option if they intend on being a going concern. Their core business is maintaining something that's worth a dollar and they can't do that, then the market will move on to other things. It'll be permanently an unwinding operation. Their best play right now would be to find some big pocketed investors with on chain assets. Have them buy USDC on-chain for $.90 on the dollar, write off the $1 redemption value with a $.10 bonus, and defer redemption on those tokens until they figure out the liquidity situation. It'd be a crazy bet and requires on-chain assets to kick start it, but the investors would be making a decent return in exchange for delaying their redemptions.
- hd95489 4y agoWould you take that bet? It’s likely that the exposure is similar in nature for their other assets
- nikanj 4y agoIf Circle is healthy they can make tons of money buying USDC at a discount. The fact they’re not doing it should tell you how solvent they are. Buying their own coin is a guaranteed 10% instant profit, why are they not moving?
- TekMol 4y agoIsn't it even their duty to buy it? I don't know how USDC is set up. But I thought stablecoins work like this: The creator sells their coins at $1.01, so it will never go beyond $1.01 as it would be cheaper to by from the creator. They buy their coin at $0.99. So it will never go below $0.99 as it would be better to sell to the creator.
- anonymoushn 4y agoYes, presumably redemptions will remain open come Monday. As far as I know Circle creates and redeems at par, they don't charge 100bps or whatever.
- TekMol 4y agoIf they buy and sell at $1, how do they finance their operation?
- anonymoushn 4y agoThey buy treasuries and collect 4.5% on $40 billion.
- khold_stare 4y agoThat is definitely not how USDC is set up. The creator takes 1 USD, and gives back 1 USDC and vice versa. In this case, some of the USD held at SVB disappeared, so Circle has less money for the USDC -> USD redemptions. There needs to be a 1:1 backing, otherwise a stable coin is just smoke and mirrors.
- 4y ago
- vgatherps 4y agoYou can do a little bit of math on recovery scenarios for USDC and they imply much better prices than 90 cents. Don't think this means it's a good trade to go buy at 90 cents though. If Circle opens up redemptions on Monday there will almost certainly be a run. There's no reason to think that after the dust settles, you'll have something worth more than 90 cents.
- fancyfredbot 4y agoCircle will either all of their money back from SVB (most likely) or a large proportion of it back. There's almost no chance that they get nothing back. The current price seems to assume the money is gone forever. Seems odd to me.
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- hd95489 4y agoI would bet that most stable coins have exactly the same kind of exposure that SVB had. Overexposure to long term bonds bought at rock bottom prices
- curiousgal 4y agoYou mean rock bottom yields, right?
- hd95489 4y agoYields yeah