5 ms·

USDC may have instant 24/7 access to global markets. But why did the price of USDC drop to 90 cents this weekend. It isn't immune bank runs.

lifty 4y ago
They held cash at SVB. They will probably smarten up and start holding short term treasuries and avoid as much as possible bank liabilities. Just a guess.
- rabf 4y ago
  Tha majority of their reserves were in short term tresuries, only a fraction of thier reserves were stored in 4 different banks as cash in order to be able process redemtions.
  - lifty 4y ago
    So I guess for them the only option for their short term redemption buffer is to keep money in the 4 systemically important banks. There are no other options. Relevant note, FED won't approve full reserve banks (several tried) as they might suck too many deposits out of the rest of the banks, posing a risk to the other banks.
spir 4y ago
You're right, last weekend, USDC dropped to a low of ~$0.88. However note - SVB was closed on a Friday (as is the FDIC's custom). This meant that USDC could not process redemptions over the weekend as banks were closed, and this created fear in the market. - USDC had 8% of their reserves trapped in SVB. The fair market value of USDC would have been $0.92 if all SVB deposits were lost, which was never likely. - crucially, USDC operator Circle has acknowledged the need to transition to a "full reserve" model where reserves aren't subject to bank runs. https://twitter.com/jerallaire/status/1635548066185871360 https://twitter.com/jerallaire/status/1635548066185871360 - over the weekend, USDC did lose its $1 peg and trade as low as ~$0.88. However, all USDC holders were able to maintain access their USDC to do whatever they wanted with it, which is a lot better than SVB depositors frozen and waiting to see what happened.
- deleted 4y ago
  [deleted]
- lordfrito 4y ago
  > stablecoins are about to become a Very Good Deal for ordinary people > the UX of stablecoins is becoming vastly superior to bank deposits because you'll be immune to bank runs, control your own money, and have instant access to global markets, including for low-risk yield on your stablecoins, such as in treasuries or over-collateralized lending I disagree, but OK > over the weekend, USDC did lose its $1 peg and trade as low as ~$0.88 Hmmm doesn't seem like a Very Good Deal for an ordinary person. > However note Oh, now I see what you're doing. It's a Very Good Deal, except reasons > However, all USDC holders were able to maintain access their USDC to do whatever they wanted with it So it might have dropped 12%, but they still had access. That's a win to you? Your definition of stable is vastly different than mine. My FDIC backed bank account is guaranteed not to lose value. I don't understand the cognitive dissonance on display here.
  - spir 4y ago
    For your objection to refute my thesis, you'd need to explain how a world with stablecoins that are immune to bank runs, where those stablecoins are held in next-gen wallets and can be swapped into any asset in the world 24/7 any time you want at the click of a button, is not a superior UX vs. today's bank deposits.
    - lordfrito 4y ago
      > you'd need to explain how a world with stablecoins that are immune to bank runs... Wait... I need to explain this? I don't even believe in it. I'm not really interested in arguing theoretical constructs. You yourself admitted that just last weekend a stablecoin dropped to 88 cents on the dollar (while my bank dollars were still worth one dollar each). Before I prove anything, why don't you start by proving (heck just demonstrate) a long term stable stablecoin. Just saying it's stable doesn't make it so. I have dollar deposit protections now. Love or hate the fed, at least you're dealing with a known quantity, and a boatload of laws that are actually (historically demonstrable) enforceable. There are no regulations or protections in the crypto space, only a bunch of hollow promises. Until the crypto community can actually demonstrate long term stability (and stable audited reserves) of any so called "stable" coin, I'm not interested in discussing financial theocraticals, let alone moving my dollars out of my FDIC insured bank accounts.
polux33 4y ago
The price on the "secondary market" dropped below 90 cents on the dollar. Circle before and after the SVB crisis (which happened during a friday night and through the weekend) continued to issue/redeem their tokens at par with the dollar. It is market sentiment which temporarily devalued USDC. You would have obtained exactly the same thing if US dollars held in SVB bank accounts were denominated in a virtual currency named "USD-SVB" and a 24/7 blockchain operating the transactions. Before/After the crisis each USD-SVB would be reedemable for $1 but DURING the crisis I bet you my house those USD-SVB would have fallen like a rock on the dollar. I know it's good to be anti-crypto on HN but please, try to not completely close your mind to the subject

lifty 4y ago

They held cash at SVB. They will probably smarten up and start holding short term treasuries and avoid as much as possible bank liabilities. Just a guess.

rabf 4y ago
Tha majority of their reserves were in short term tresuries, only a fraction of thier reserves were stored in 4 different banks as cash in order to be able process redemtions.
- lifty 4y ago
  So I guess for them the only option for their short term redemption buffer is to keep money in the 4 systemically important banks. There are no other options. Relevant note, FED won't approve full reserve banks (several tried) as they might suck too many deposits out of the rest of the banks, posing a risk to the other banks.

spir 4y ago

You're right, last weekend, USDC dropped to a low of ~$0.88. However note - SVB was closed on a Friday (as is the FDIC's custom). This meant that USDC could not process redemptions over the weekend as banks were closed, and this created fear in the market. - USDC had 8% of their reserves trapped in SVB. The fair market value of USDC would have been $0.92 if all SVB deposits were lost, which was never likely. - crucially, USDC operator Circle has acknowledged the need to transition to a "full reserve" model where reserves aren't subject to bank runs. https://twitter.com/jerallaire/status/1635548066185871360 https://twitter.com/jerallaire/status/1635548066185871360 - over the weekend, USDC did lose its $1 peg and trade as low as ~$0.88. However, all USDC holders were able to maintain access their USDC to do whatever they wanted with it, which is a lot better than SVB depositors frozen and waiting to see what happened.

deleted 4y ago
[deleted]
lordfrito 4y ago
> stablecoins are about to become a Very Good Deal for ordinary people > the UX of stablecoins is becoming vastly superior to bank deposits because you'll be immune to bank runs, control your own money, and have instant access to global markets, including for low-risk yield on your stablecoins, such as in treasuries or over-collateralized lending I disagree, but OK > over the weekend, USDC did lose its $1 peg and trade as low as ~$0.88 Hmmm doesn't seem like a Very Good Deal for an ordinary person. > However note Oh, now I see what you're doing. It's a Very Good Deal, except reasons > However, all USDC holders were able to maintain access their USDC to do whatever they wanted with it So it might have dropped 12%, but they still had access. That's a win to you? Your definition of stable is vastly different than mine. My FDIC backed bank account is guaranteed not to lose value. I don't understand the cognitive dissonance on display here.
- spir 4y ago
  For your objection to refute my thesis, you'd need to explain how a world with stablecoins that are immune to bank runs, where those stablecoins are held in next-gen wallets and can be swapped into any asset in the world 24/7 any time you want at the click of a button, is not a superior UX vs. today's bank deposits.
  - lordfrito 4y ago
    > you'd need to explain how a world with stablecoins that are immune to bank runs... Wait... I need to explain this? I don't even believe in it. I'm not really interested in arguing theoretical constructs. You yourself admitted that just last weekend a stablecoin dropped to 88 cents on the dollar (while my bank dollars were still worth one dollar each). Before I prove anything, why don't you start by proving (heck just demonstrate) a long term stable stablecoin. Just saying it's stable doesn't make it so. I have dollar deposit protections now. Love or hate the fed, at least you're dealing with a known quantity, and a boatload of laws that are actually (historically demonstrable) enforceable. There are no regulations or protections in the crypto space, only a bunch of hollow promises. Until the crypto community can actually demonstrate long term stability (and stable audited reserves) of any so called "stable" coin, I'm not interested in discussing financial theocraticals, let alone moving my dollars out of my FDIC insured bank accounts.

polux33 4y ago

The price on the "secondary market" dropped below 90 cents on the dollar. Circle before and after the SVB crisis (which happened during a friday night and through the weekend) continued to issue/redeem their tokens at par with the dollar. It is market sentiment which temporarily devalued USDC. You would have obtained exactly the same thing if US dollars held in SVB bank accounts were denominated in a virtual currency named "USD-SVB" and a 24/7 blockchain operating the transactions. Before/After the crisis each USD-SVB would be reedemable for $1 but DURING the crisis I bet you my house those USD-SVB would have fallen like a rock on the dollar. I know it's good to be anti-crypto on HN but please, try to not completely close your mind to the subject