The recent collapse of some crypto-friendly banks, including Silicon Valley Bank and Signature, has raised concerns about the stability of USD Coin (USDC), the second largest stablecoin in terms of market cap. However, according to DeFi analyst Ignas, the exposure of USDC reserves to these collapsed banks is too low to cause significant damage to the stablecoin.
In this article, we’ll take a closer look at the current situation with USDC and why it’s not going to zero like TerraUSD (UST) did in May 2022.
USDC’s Exposure to Collapsed Banks
Out of the entire basket of assets that is backing USD Coin’s circulating supply, only $3.3 billion are stuck in Silicon Valley Bank (SVB), which is less than 9% of its market cap’s USD equivalent. This means that even if the money is not immediately recoverable, it can be recovered through bank insurance procedures sooner or later.
According to Ignas, the exact damage might be below $200 million, which is painful for USDC but not that dramatic. Its issuer has enough Short-Dated U.S. Treasuries to cover the potential losses and reestablish the balance of USDC.
USDC is Not Going to Zero
Despite the panic on crypto markets, Ignas recommends not to overestimate the similarities between the problems of the USDC stablecoin and the collapse of TerraUSD (UST). He emphasized that USDC is not going to zero like UST did.
Circle, the issuer of USDC, has already clarified how much cash they have stuck, and the situation might be better than what the market is pricing right now. Moreover, when banks open on Monday, arbitrageurs will restore the 1:1 peg for USDC.
Ignas also noted that the panic on crypto markets is amplified by the decision of Coinbase to stop USDC:USD redemptions and Binance disabling USDC/USDT swaps.
In conclusion, while the exposure of USD Coin (USDC) reserves to collapsed banking entities in the USA is a concern, it’s not significant enough to cause the stablecoin to collapse like TerraUSD (UST). According to DeFi analyst Ignas, USDC is not going to zero, and its issuer has enough Short-Dated U.S. Treasuries to cover potential losses and reestablish the balance of USDC.
As always, investors should exercise caution and do their own research before making any investment decisions.