The following is a guest post by Anndy Lian.
The crypto industry is currently experiencing anxiety due to concerns about the potential detachment of USDC, a stablecoin supported by US dollars. As an individual who closely monitors the market, I have been observing the situation and would like to share some of my personal views.
Firstly, It’s worth emphasizing that Silicon Valley Bank (SVB), responsible for holding the funds backing USDC, reportedly has enough assets to meet all withdrawal requests. According to the Federal Deposit Insurance Corporation (FDIC) reports as of December 31, 2022, SVB had approximately $209.0 billion in assets and about $175.4 billion in deposits. However, despite the impressive asset base, there are still concerns about the liquidity of SVB’s book and what percentage of a haircut would be expected if the bank were to experience significant losses.
This uncertainty stems from the fact that the bank’s underlying assets are not transparent, and there are no clear indications of how illiquid or risky these assets might be. As a result, there is a risk that if SVB’s assets experience significant losses or become illiquid, the bank may struggle to meet all of its obligations, potentially resulting in a depeg of USDC. This would significantly impact the broader crypto market, as USDC is widely used as a trading pair on various exchanges.
Secondly, another important aspect to consider regarding the stability of USDC is the financial backing provided by Circle, the company that issues the stablecoin. Circle holds 77% of their reserves in highly liquid instruments such as 1-4 month T-Bills, managed by Blackrock and held at BNY Mellon. This allocation of reserves provides significant security for USDC, as T-Bills are generally considered very safe and highly liquid investments.
The T-Bills held by Circle provide an absolute floor for USDC of around 0.77, meaning that even in the worst-case scenario, USDC should not depeg below this level. Furthermore, since T-Bills are highly liquid, they should be easily sold if Circle needs to raise funds quickly to meet unexpected obligations.
This provides additional protection for USDC and helps mitigate any potential risks associated with the stablecoin. It’s also worth noting that Circle’s retained earnings and interest income should theoretically be sufficient to cover any expected “losses” it may be exposed to from SVB. This means that even if SVB were to experience significant…
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