The market reacted with a big sell-off, depegging the stablecoin from the dollar, just after Circle disclosed Silicon Valley Bank did not transfer $3.3 billion of its USD Coin holdings. Not all crypto investors, however, had the good fortune to escape from the unforeseen condition with their funds.
While some investors had the foresight to cash out before the news, many were left holding on to a depegged token and subsequently saw their investments drop in value.
The incident highlights how fragile even stablecoins can be when certain key players fail to carry out their responsibilities. Investors started trading their USDC tokens for other stablecoins like Tether in order to reduce losses.
Regrettably, a USDC investor paid nearly $2 million to receive $0.05 of USDT in one transaction, as Crypto Twitter user BowTiedPickle noticed.
On-chain Investigations discovered that the user had kept the assets in a liquidity pool (LP), a well-liked cryptocurrency passive income generator. The user might have received a 6% slippage by selling his LP tokens for USDT. They opted instead for a “questionable” course of action.
Silicon Valley Bank sparks devastating crisis – did crypto investors make it out safe?
Due to the pressure of the deadline, the USDC investor overlooked his slippage, which enables investors to determine the exact price at which a token must be sold in order for a transaction to be completed. He described the subtleties that ultimately resulted in a maximal extractable value (MEV) bot earning $2.045 million after shelling out $45 for gas and $39,000 for MEV bribes.
A sell-off that followed USDC’s confirmation by Circle that $3.3 billion was locked up with Silicon Valley Bank caused the stablecoin’s value to fall below its $1 peg.
The silver lining, however, is that Circle was quick to respond and mitigate the situation by transferring its reserves from a different bank. With this action, they have shown their commitment to transparency and security; something investors should take into account when deciding whether to put their trust in a particular stablecoin. It also serves as a reminder that the crypto market is still learning and evolving, so investors should remain informed and take proper precautions when investing.
In the end, only time will tell how this incident affects the USD Coin’s trustworthiness in the eyes of investors moving forward.
As more investors enter the crypto market, it is essential that they understand the risks associated with their investments and remain vigilant in order to protect themselves from potential losses. For those who were caught off guard by the incident, it serves as a reminder of how quickly markets can move and that it is important to stay up-to-date on news and events in the crypto industry.
