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> I can't see this not returning to it's peg by the next news cycle. It's free money. But isn't this the problem? If over the weekend billions of dollars of

> I can't see this not returning to it's peg by the next news cycle. It's free money. But isn't this the problem? If over the weekend billions of dollars of USDC is purchased at less that $1 from people expecting to cash in on "free money" come Monday, Circle is going to have to be able to ensure that that actually happens, which could easily require more liquidity than remotely possible (edit: I just realized that Circle claims that back 1-to-1 with liquid assets). Volume right now in USDC is at record highs. If all of those people are hoping to make free money on Monday, and it turns out Circle is unable to maintain that, then the entire USDC will crash almost instantly once people realize it's impossible to keep it pegged. I'm far from a crypto expert so could you clarify what I'm missing?

daydream 4y ago
USDC is back to $0.98 as of Saturday evening.
- PheonixPharts 4y ago
  I don't think you understand my question or the issue at hand, but I think I have found some answers. It doesn't matter if it was already $1 right now. The assumption is that everyone purchasing USDC today when it was below $1 is planning on selling it Monday as a quick arbitrage. Assuming the peg is restored by Monday, Circle is still going to have to have a lot of liquidity to meet the demands of a huge number of people trying to realize that $1. Again, today was the highest volume ever for USDC and presumably many of those transactions are people expecting to cash out Monday. It seems very possible to me, that Circle will not be able to meet the liquidity demands of keeping the peg and fulfilling their promise of $1 USD for 1 USDC. If they falter at all, and the peg doesn't hold, then anyone holding will immediately panic and attempt to liquidate their position leading to a collapse. The piece of the puzzle I was missing is that I didn't realize that Circle claims that they have cash reserves (cash and 30-day treasuries) equal to the entire USDC market cap. So anyone who trusts that Circle has the liquidity and cash on hand to payout everything views this as free money. I would point out that this "arbitrage" existing for more than a brief moment implies there are lots of people who do not believe that Circle can meet these demands and are happily unloading their positions.
  - TedDoesntTalk 4y ago
    > I would point out that this "arbitrage" existing for more than a brief moment implies there are lots of people who do not believe that Circle can meet these demands and are happily unloading their positions I thought 1 new coin is created for each new $1
    - tsimionescu 4y ago
      That is their promise, and I've ready previously that they do have some audits that verified it (unlike Tether, which used to make a similar claim). However, another important question is what actually happens to that dollar - are they actually able to wire you that dollar if you hand them back 1 USDC? For 3.3bn of those dollars, we know they are not currently able to, since those 3.3bn are tied up in SVB, which isn't itself able to wire them to anyone. Hopefully, the rest of the them are more available, but it remains to be seen.
    - vgatherps 4y ago
      Most people trading USDC aren't creating/redeeming directly with Circle, they're transacting on an exchange where the price is simply determined by supply and demand. Circle can only redeem during bank hours, so almost everybody involved maintains a buffer of easily accessible dollars to paper over. However in any sort of stressful time these buffers get used up. With no buffer to satisfy the 1USDC=1Dollar, redemptions stop until bank hours and there's no arbitrage opportunity. For the most part nobody really cares if one of these buffers gets used up because you'll just hold USDC inventory for size. But when the solvency of USDC is in question, nobody wants to hold USDC inventory, and so there's no buying pressure for USDC below $1. Another factor is that even if you think the USDC fair is .97, not .92, buying below .97 isn't necessarily a good trade. You might be last in line to do a 1-1 redemption, and by that time, the hole isn't $1bn on $40bn but $1bn on $5bn.
  - ethbr0 4y ago
    If the peg is restored, why would a holder of sub-$1 USDC redeem instead of just selling to the market?
charcircuit 4y ago
The belief would be that USDC could repeg while being under collateralized. If there is enough holders of USDC who don't mind that and enough USDC locked up in various smart contacts, wallets with lost keys, or there being people who have missed the news, then Circle may have enough liquidity to continue operating USDC despite not having enough funds to cash out all USDC which technically exist.
mike_d 4y ago
> I'm far from a crypto expert so could you clarify what I'm missing? USDC isn't an algorithmic stablecoin or backed by non-cash assets. It is a coin that is redeemable 1:1 for cash, always. They have approximately $40b in coins and is only "short" $3.3b. Right now the first 91% to redeem can still get a full dollar, not everyone who redeems gets 91 cents. People who have no idea how it works are panic selling fearing a crash. Other people are buying up as much as they can because you're effectively selling someone a dollar bill for 95 cents, a deal I'd take every day.
- PheonixPharts 4y ago
  > It is a coin that is redeemable 1:1 for cash, always. That's what I realized after doing some more research. This is really a test of Circle's claims. If circle really has 1-1 liquid assets to cover all USDC, this is a non-issue and many people will make some very easy money after this weekend. If, however, it's assets are not as liquid as claimed or not as 1-1 as claimed, then USDC and Circle will likely collapse Monday morning, quite possibly taking down Coinbase and much more with them.

daydream 4y ago

USDC is back to $0.98 as of Saturday evening.

PheonixPharts 4y ago
I don't think you understand my question or the issue at hand, but I think I have found some answers. It doesn't matter if it was already $1 right now. The assumption is that everyone purchasing USDC today when it was below $1 is planning on selling it Monday as a quick arbitrage. Assuming the peg is restored by Monday, Circle is still going to have to have a lot of liquidity to meet the demands of a huge number of people trying to realize that $1. Again, today was the highest volume ever for USDC and presumably many of those transactions are people expecting to cash out Monday. It seems very possible to me, that Circle will not be able to meet the liquidity demands of keeping the peg and fulfilling their promise of $1 USD for 1 USDC. If they falter at all, and the peg doesn't hold, then anyone holding will immediately panic and attempt to liquidate their position leading to a collapse. The piece of the puzzle I was missing is that I didn't realize that Circle claims that they have cash reserves (cash and 30-day treasuries) equal to the entire USDC market cap. So anyone who trusts that Circle has the liquidity and cash on hand to payout everything views this as free money. I would point out that this "arbitrage" existing for more than a brief moment implies there are lots of people who do not believe that Circle can meet these demands and are happily unloading their positions.
- TedDoesntTalk 4y ago
  > I would point out that this "arbitrage" existing for more than a brief moment implies there are lots of people who do not believe that Circle can meet these demands and are happily unloading their positions I thought 1 new coin is created for each new $1
  - tsimionescu 4y ago
    That is their promise, and I've ready previously that they do have some audits that verified it (unlike Tether, which used to make a similar claim). However, another important question is what actually happens to that dollar - are they actually able to wire you that dollar if you hand them back 1 USDC? For 3.3bn of those dollars, we know they are not currently able to, since those 3.3bn are tied up in SVB, which isn't itself able to wire them to anyone. Hopefully, the rest of the them are more available, but it remains to be seen.
  - vgatherps 4y ago
    Most people trading USDC aren't creating/redeeming directly with Circle, they're transacting on an exchange where the price is simply determined by supply and demand. Circle can only redeem during bank hours, so almost everybody involved maintains a buffer of easily accessible dollars to paper over. However in any sort of stressful time these buffers get used up. With no buffer to satisfy the 1USDC=1Dollar, redemptions stop until bank hours and there's no arbitrage opportunity. For the most part nobody really cares if one of these buffers gets used up because you'll just hold USDC inventory for size. But when the solvency of USDC is in question, nobody wants to hold USDC inventory, and so there's no buying pressure for USDC below $1. Another factor is that even if you think the USDC fair is .97, not .92, buying below .97 isn't necessarily a good trade. You might be last in line to do a 1-1 redemption, and by that time, the hole isn't $1bn on $40bn but $1bn on $5bn.
- ethbr0 4y ago
  If the peg is restored, why would a holder of sub-$1 USDC redeem instead of just selling to the market?

charcircuit 4y ago

The belief would be that USDC could repeg while being under collateralized. If there is enough holders of USDC who don't mind that and enough USDC locked up in various smart contacts, wallets with lost keys, or there being people who have missed the news, then Circle may have enough liquidity to continue operating USDC despite not having enough funds to cash out all USDC which technically exist.

mike_d 4y ago

> I'm far from a crypto expert so could you clarify what I'm missing? USDC isn't an algorithmic stablecoin or backed by non-cash assets. It is a coin that is redeemable 1:1 for cash, always. They have approximately $40b in coins and is only "short" $3.3b. Right now the first 91% to redeem can still get a full dollar, not everyone who redeems gets 91 cents. People who have no idea how it works are panic selling fearing a crash. Other people are buying up as much as they can because you're effectively selling someone a dollar bill for 95 cents, a deal I'd take every day.

PheonixPharts 4y ago
> It is a coin that is redeemable 1:1 for cash, always. That's what I realized after doing some more research. This is really a test of Circle's claims. If circle really has 1-1 liquid assets to cover all USDC, this is a non-issue and many people will make some very easy money after this weekend. If, however, it's assets are not as liquid as claimed or not as 1-1 as claimed, then USDC and Circle will likely collapse Monday morning, quite possibly taking down Coinbase and much more with them.