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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?
  - PheonixPharts 4y ago
    Who is buying billions of dollars of USDC for $1 each and.. why are they doing this? My understanding was that the entire point of a stablecoin was to smooth transactions between other crypto currencies, so most of the buying and selling of USDC was to convert between one coin and "USD" while still remaining in the crypto ecosystem. The entire reason the peg can remain is because one company, Circle, is guaranteeing to purchase it for $1. If you want to cash out a small amount, sure you can go through a company like Coinbase but if you try to cash out billions then that will just force Coinbase to go to Circle in order to maintain their own liquidity.
    - ethbr0 4y ago
      Anyone who believes the value of actual-crypto is going to fall, and therefore wants to be out of it and in USDC?
- daydream 4y ago
  I understood your question and the issue perfectly well. It's widely known that Circle backs USDC 1:1 with cash and cash equivalents. That's the value prop compared to Tether. It doesn't have to be a huge mystery as to whether Circle can meet Monday liquidity demands. You could look at USDC trading volume since it de-pegged, set the buy/sell ration as you see fit - or even do some onchain analysis - then compare to Circle's cash reserves. This would be a worst case scenario. Logic trumps puzzles.

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?
- PheonixPharts 4y ago
  Who is buying billions of dollars of USDC for $1 each and.. why are they doing this? My understanding was that the entire point of a stablecoin was to smooth transactions between other crypto currencies, so most of the buying and selling of USDC was to convert between one coin and "USD" while still remaining in the crypto ecosystem. The entire reason the peg can remain is because one company, Circle, is guaranteeing to purchase it for $1. If you want to cash out a small amount, sure you can go through a company like Coinbase but if you try to cash out billions then that will just force Coinbase to go to Circle in order to maintain their own liquidity.
  - ethbr0 4y ago
    Anyone who believes the value of actual-crypto is going to fall, and therefore wants to be out of it and in USDC?
daydream 4y ago
I understood your question and the issue perfectly well. It's widely known that Circle backs USDC 1:1 with cash and cash equivalents. That's the value prop compared to Tether. It doesn't have to be a huge mystery as to whether Circle can meet Monday liquidity demands. You could look at USDC trading volume since it de-pegged, set the buy/sell ration as you see fit - or even do some onchain analysis - then compare to Circle's cash reserves. This would be a worst case scenario. Logic trumps puzzles.