USDC Falters, BUT There's Still Hope
Banks are fleeing but there's still ton of interest in the crypto space
Hey there,
What a crazy weekend it has been. Before sleeping on Friday night, I read the news regarding Silicon Valley Bank (SVB) being forced to close, and woke up on Saturday morning to the news that USDC stablecoin was depegging!
This was extremely shocking especially how it’s taught to be the safest stablecoin especially after BUSD halted its minting.
I’ll cover this a bit more below, as well as other interesting developments that happened this week.
The Top Story: USDC Depegging
It all started when Silvergate announced its voluntary liquidation, mainly due to the lack of liquid assets to process withdrawals, after it announced a significant loss in its latest earnings report.
SVB also started to falter as a bank run started, with US regulators ultimately ordering the bank to shut down.
The entire situation is sort of complicated, but The Plain Bagel does a great job in summarising what happened to both of these banks.
This led to a lot of rumours regarding USDC, since SVB was one of the 7 banks that held Circle’s cash reserves.
What’s more, Circle did not announce anything and this radio silence led to investors scrambling to get out of the stablecoin.
Circle finally made an announcement, which really didn’t say much which sparked off even more selloffs.
Finally, Circle confirmed that it had $3.3 billion worth of cash stuck in SVB, which was much more than most people expected. This amounted to around 8.25% of Circle’s entire reserves being stuck in limbo.
This led to a massive depeg where at its lowest point, 1 USDC was worth $0.87.
Circle’s CEO, Jeremy Allaire, then announced an update on USDC, which helped to quell some fears.
Unlike the crash of UST, Circle’s approach to transparency helped to save them.
The company initiated transfers on Thursday to transfer out the its funds still in SVB, but it was not settled before SVB shut down.
Circle is confident that they will be able to receive the funds from the FDIC. However, if it that does not happen, Circle will use other means to obtain capital to process the withdrawals.
USDC finally started to increase in price after this news, but it still remains around $0.95.
On Monday, the banks are finally open which could spur mass redemptions as more people rush to redeem their USDC holdings for USD. In the short run, Circle should have enough capital to process all withdrawals, even if they do not get the $3.3 billion back.
The depegging of USDC is mainly due to the lack of liquidity on centralised and decentralised exchanges. Everyone is looking to sell USDC, while no one really wants to buy it, resulting in this difference in price.
It will definitely be interesting to see what happens on Monday, and we can hope that the mass panic will be contained.
I still have a significant amount of my portfolio in USDC, but I have not sold anything yet. I’m personally quite confident that Circle will be able to go through this ordeal, and they still have enough reserves to back most of its stablecoin.
This is in contrast to UST which did not have anything backing it except for its algorithm.
Other Interesting News
Apart from the USDC drama, here are some other fascinating stories from the past week:
Uniswap to launch its own mobile wallet
As one of the largest DEXes in the world, Uniswap has taken the next step with its non-custodial wallet.
The Web3 wallet wars are in full force as every company has created their own product.
Even the likes of Robinhood have released their wallet.
There are now so many options to choose from, and since they are all free, it will definitely be hard to decide on which on to go with.
Do let me know in the comments what are some of the factors you consider before using a Web3 wallet.
Pay all gas fees in USDC with this wallet
Announced just before the USDC depeg, Instadapp released Avocado, which is a smart contract wallet.
With account abstraction being released on Ethereum last week, this has led to new functionalities that can be programmed into wallets.
Avocado requires you to transfer all of your funds (from different networks) into a new network with its own wallet address.
You are then able to use all of your funds on any EVM-compatible network. What’s more, you can use Avocado to send your funds via any network!
It’s certainly a very interesting concept, but I’ve yet to try it out. Let me know below if you’ve used it already and what your thoughts are about it.
MyAlgo hack gets worse…
All users are urged to withdraw funds from their MyAlgo wallets as they are still unable to find out what’s the root cause of the hack.
You can find out more about what happened to MyAlgo, and the key lessons we can learn in my video below 👇🏻
Coinbase is on a roll 🔥
Another new development in the wallet space has been made by Coinbase. After previously announcing its new Layer 2, Base, it has now developed a new Wallet as a Service (WaaS).
This helps developers to create Web3 wallets for their apps, without requiring users to note down their seed phrases or private keys.
Overall, Web2 users should be able to seamlessly transition to Web3 without having to know how a blockchain actually works.
Starbucks NFT programme is a hit
Starbucks Odyssey is a loyalty programme that was launched on the Polygon network, and they launched their first paid NFT collection with an overwhelming success
These NFTs were sold within 18 minutes, and highlighted the significant demand for them.
Starbucks is thriving as a Web2 company transitioning to Web3, compared to others like Porsche who had a rather underwhelming launch of their NFT collection.
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