Reading time 4m30s
Welcome back from the weekend, Tokengraphers. We just experienced a historic weekend for cryptocurrency and global finance in general — a major bank has gone down and a massive stablecoin depegged (and then regained its peg).
Coming up today…
- Circle Exposed to SVB: USDC = $0.87
- Silicon Valley Bank Is Tanking
- Is Pokémon Coming to Web3?
- “Very Lucky” Miner Gets $150k BTC
- Euler Finance Hacked for $195M
The global crypto ecosystem suffered a massive blow this weekend when USDC, a major stablecoin, depegged from its $1 value and sank to $0.87.
BREAKING: Circle $USDC stablecoin falls under $0.90
— Watcher.Guru (@WatcherGuru)
Mar 11, 2023
The depeg was a result of Silicon Valley Bank’s (SVB) collapse (see the next section below to catch up on that story in full). Circle, the company that launched USDC with Coinbase in 2018 and currently manages the stablecoin, announced that it was exposed to SVB — it kept about 8% of its assets with the bank, which amounts to roughly $3.3B.
2/ Like other customers and depositors who relied on SVB for banking services, Circle joins calls for continuity of this important bank in the U.S. economy and will follow guidance provided by state and Federal regulators.
— Circle (@circle)
Mar 11, 2023
This triggered a bank-run-like sell off of USDC, and the sheer speed and size of redemptions is what caused the stablecoin to lose value.
Circle’s CEO Jeremey Allaire made it clear that his company’s assets that were kept with SVB would become fully accessible when banks opened again after the weekend (Monday, today). As a result of Allaire’s announcement and Circle’s choice to “stand behind” USDC and pay for any further shortfall itself, the stablecoin’s price has stabilized back towards $1.00.
100% of USDC reserves are also safe and secure, and we will complete our transfer for remaining SVB cash to BNY Mellon.
As previously shared, liquidity operations for USDC will resume at banking open tomorrow morning.
— Jeremy Allaire (@jerallaire)
Mar 12, 2023
What does this mean for crypto? Well, even though USDC’s price is close to $1.00 again ($0.988 at the time of writing), we’re left with some troubling questions as holders begin to redeem their assets today.
A stablecoin’s peg is not truly determined by the price on an exchange.
It is determined by the ability to redeem directly from the issuer 1 for 1.
That will be the question this week. Can people redeem directly from Circle?
— The Wolf Of All Streets (@scottmelker)
Mar 11, 2023
Is crypto actually an alternative to traditional financial systems if users have to wait for banks to open before they can sell their stablecoins? We feel that these services and options aren’t a true alternative — at least not yet. We need to see further separation between stablecoins’ stability and major banks’ solvency.
And with the fall of first Silvergate, then SVB, and now Signature bank as well, where can crypto companies turn for banking services in the first place? We could see Kraken’s upcoming bank step into this financial vacuum space, but that day could be a ways off. Companies will likely need to find new creative solutions — or just take less risks for now — in the meantime.
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At the heart of the above USDC depegging is the collapse of SVB, one of the highest-profile banking failures in history.
It started last Friday when California regulators ordered SVB to shut down operations after it sold a large number of assets to try and raise capital to keep itself afloat — but the reason for the shutdown wasn’t clear.
Customers lining up outside of Silicon Valley Bank at its Menlo Park, CA branch.
— Cointelegraph (@Cointelegraph)
Mar 10, 2023
The day before, SVB announced that it needed to raise $2.25B in stock just to stay afloat. The company’s stock price plummeted by 60% after that. Here’s the course of events that took place after that:
- In the face of the collapse, crypto companies began announcing their exposure to SVB
- USDC depegged from its $1.00 value because Circle had 8% of its assets tied up at SVB
Companies that have disclosed exposure with Silicon Valley Bank:
- Circle: $3.3 billion
- Roku: $487 million
- BlockFi: $227 million
- Roblox: $150 million
- Ginkgo Bio: $74 million
- IRhythm: $55 million
- RocketLab: $38 million
- SangamoTherapeutics: $34 million
-… twitter.com/i/web/status/1…— Genevieve Roch-Decter, CFA (@GRDecter)
Mar 12, 2023
- Whales began selling off their USDC while venture capitalists stood behind SVB, attempting to rally support for the bank
- Regulators jumped into action: the Fed announced a $25B backstop loan plan to help banks with liquidity problems and announced that depositors would be fully protected
#BREAKING: Depositors of Signature and Silicon Valley Bank will now have access to all of their money on Monday. No losses will be borne by the taxpayer
Shareholders/certain unsecured deb tholders will not be protected
Additional funding will also be made available for banks.
— Mario Nawfal (@MarioNawfal)
Mar 12, 2023
That last bullet point is a crucial one — that’s a very large change in tune from the US government’s response during the housing market crash, where it bailed out large banks and citizens had to suffer the consequences through lost deposits, tax dollars, and a massive recession.
Although regulators have come to the rescue in the short term, again, it remains unclear what crypto companies will do moving forward without any crypto banks left on the market at the moment.
There are 4 types of stablecoins — what type is USDC?
A. Commodity-Backed Stablecoin
B. Fiat-Backed Stablecoin
C. Crypto-Backed Stablecoin
B. Algorithmic Stablecoin
Scroll down to the bottom to see if you're right!
Other Top Stories Today 📢
Nintendo’s massively successful video game franchise might be gearing up for a Web3 debut — the Japanese company just reportedly posted a Web3 expert job listing, turning heads both in the gaming industry and the crypto space. Some excerpts from the job listing include that the company is looking for someone with “deep knowledge and understanding of Web3, including blockchain technologies and NFT, and/or metaverse.” If Nintendo and Pokémon entered into the metaverse movement, it could be a huge boost for global adoption of blockchain technology and interest.
In 13 years, a new BTC block has only been mined by a solo miner 270 times — and the most recent one just happened 3 days ago. He or she earned a 6 BTC award, taking home $150k for their efforts. This is such a rare occurrence because solo miners are competing against corporations that have entire fleets of mining rigs set up that dwarf soloists in computational power, meaning that this solo miner was incredibly lucky to have performed the correct math equations fast enough to solve the block on their own before the competition.
Euler Finance is the newest entry in the growing list of protocols that have been hacked and stolen from in the crypto industry. The flash loan attack was launched through the Binance Smart Chain Network (like similar recent attacks), and led to a loss of almost $200M in stablecoins, wrapped BTC, and staked ETH. Euler Labs has tweeted that they’re aware of the situation and are currently working with law enforcement regarding the matter.
❓ Trivia Answer
Answer: B.
USDC is a fiat-backed stablecoin backed by assets denominated in USD. That’s why the massive sell off of USDC depegged its price — Circle couldn’t keep up with redemptions because it lacked access to all of the assets that back the stablecoin.
Web3 Resource of the Day
A Major Bank Just Collapsed | WARNING | Video from Andrei Jikh
In this video analysis, Andrei Jikh breaks down the collapse of Silvergate bank — why it happened, what it means, and the differences between crypto banks and “normal banks.” This video indirectly speaks right into the heart of the Silicon Valley Bank collapse and the USDC depeg as well, and understanding the principles behind Silvergate’s meltdown is the key. How does the “speed” of crypto vs. fiat play into financial moments like the one we find ourselves in today? How did Silvergate’s decisions in the past lead to the aftermath it’s experiencing today?
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DISCLAIMER: This is not financial advice. This newsletter is strictly educational and is not investment advice to buy or sell any assets or to make any financial decisions. Do your own research.