In response to the unusual decoupling of the U.S. Dollar Coin (USDC) stablecoin following the collapse of its counterparty Silicon Valley Bank (SVB), crypto whales have reported heavy losses and appear to have initiated a series of capital flight to protect assets. Du Jun, the co-founder of the cryptocurrency exchange Huobi Global, wrote: "[I] dodged LUNA, dodged 3AC, even dodged FTX [and their debacle], but I couldn't dodge Silvergate, and I couldn't dodge SVB and USDC. Asked some crypto veterans; including me Including over $1 billion in losses in stocks and deposits. I'm devastated and it's time to cut my budget."
On the same day, blockchain celebrity and Tron founder Justin Sun reportedly extracted $82 million in USDC from decentralized finance (DeFi) protocol Aave v2 and exchanged it from Dai (DAI) in a series of transactions. At the time of publication, the $82 million USDC is worth $75.26 million.
Speaking of DAI, stablecoin issuer MakerDAO submitted an emergency protocol on March 11, requiring, among many projects, to limit the use of USDC to mint DAI to prevent panic selling. MakerDAO is one of the largest holders of the stablecoin, with more than $3.1 billion ($2.85 billion) in reserves collateralized by DAI, which also depegged DAI. Subsequently, crypto projects that incorporated DAI into token economics also suffered losses due to the chain reaction.
Curve Finance, a popular DeFi protocol for trading stablecoins, reported an all-time high of $5.67 billion in daily trading volume due to the events. For context, the protocol only has $3.77 billion in total value locked. Some other platforms simply cannot handle the high volume of transaction requests associated with USDC. In one incident, a user received just 0.05 Tether (USDT) after paying over $2.08 million in a swap that resulted in an impermanent loss. In an update, KyberSwap, the decentralized exchange that facilitates the swap, said it was "assisting in the recovery of funds" and was in touch with users on the issue.
According to Loki Zeng, a well-known DeFi analyst at New Huo Technology, Circle’s reserves are spread across $32.4 billion in treasury instruments, $3.3 billion in SVB deposits, and $7.8 billion in other financial institution deposits. once wrote: “For USDC to fail, it needs to meet three conditions; SVB and the other three risky banks have sufficient deposits, recovery rates on such deposits are still low, and USDC cannot mitigate such losses.”
Zeng added that his personal view is that “there is a very small chance that something will go wrong, and if it does, it will not be as serious as FTX.” However, the DeFi analyst added that his estimate of the net worth of USDC’s price is “at the extreme $0.885 under normal conditions and $0.985 under normal conditions". At press time, the price of USDC is down 8.30% over the past 24 hours to $0.9163.
Alex Svanevik, CEO of blockchain analytics firm Nansen, also commented that Circle and USDC “can do it.” However, Svanevik also warned that Circle needs to "have top-notch execution over the next few days," such as a "flawless redemption," and no calls for a "bailout pitch." In another tweet, Svanevik also revealed that a user moved $25 million from their PulseX sacrificial wallet and exchanged it for DAI.
