The stablecoin world is once again facing uncertainty as the world’s second-largest stablecoin, USD Coin (USDC), faces a potential black swan event that could lead to the collapse of the entire stablecoin ecosystem. However, experts suggest that USDC’s situation is broadly different from the UST collapse of 2022.
Value dropping to zero means major shareholders are selling
Our observations have suggested that USDC’s value has been dropping, indicating that major shareholders are selling their holdings. This is a worrying trend for USDC holders, as it could potentially lead to a bank run.
Despite the rumors, no on-chain proof of a bank run on USDC has been found so far. However, investors are keeping a close eye on the situation as the potential impact on the entire cryptocurrency market is significant.
Circle, the issuer of USDC, has burned $2.34 billion USDC in the last 24 hours. While this may seem like a significant amount of money, it is not when compared to historical data. Experts suggest that this move by Circle is an attempt to protect USDC from a black swan event in the U.S. banking system.
USDC is a completely different case from the UST collapse
In May 2022, the UST stablecoin collapsed, leading to chaos in the cryptocurrency market. However, experts suggest that the current USDC situation is vastly different from the UST collapse.
Unlike UST, USDC is a well-regulated stablecoin backed by traditional US financial institutions on public blockchains.
If Circle fails, it could impede US financial institutions from launching global financial businesses on public blockchains.
The potential collapse of USDC could have far-reaching implications, as it could impede US financial institutions from launching global financial businesses on public blockchains.
This would be a significant setback for the cryptocurrency industry, which has been working to gain mainstream acceptance.
Major stablecoin ecosystems are affected
The stablecoin ecosystem has already felt the impact of USDC’s depegging from the U.S. dollar. Major stablecoins like DAI, USD Digital (USDD), and fractional-algorithmic stablecoin Frax (FRAX) have all been affected by the adverse market sentiments caused by the USDC sell-off.
DAI, which has $6.78 billion worth of supply collateralized by $8.52 billion worth of cryptocurrencies, lost 7.4% of its value due to USDC’s depegging. USDD and FRAX also saw significant drops in their value.
In a further blow to USDC, major U.S. crypto exchange Coinbase announced that it has suspended U.S. dollar USDC conversions while banks are closed over the weekend.
Circle’s chief strategy officer Dante Disparte has posted on Twitter that Circle is currently protecting USDC from a black swan failure in the U.S. banking system.
The potential failure of Silicon Valley Bank, where Circle held part of its USDC cash reserves, could have broader implications for business, banking, and entrepreneurs.
The USDC stablecoin is facing a potential black swan event that could lead to its collapse and have far-reaching implications for the entire cryptocurrency industry.
Regardless, experts suggest that USDC’s situation is vastly different from the UST collapse of 2022, and the stablecoin ecosystem may be better equipped to handle the potential fallout. Investors and industry watchers will continue to monitor the
