USDC broke its dollar peg on Saturday after Circle revealed that
$3.3 billion of the coin's reserves were at SVB.
The stablecoin fell to as low as $0.88, according to CoinGecko
data, but returned to $1 on Monday. Circle announced it would
allow automatic USDC redemption through a new banking
relationship, with Cross River Bank.
Stablecoins are cryptocurrencies designed to maintain a constant
exchange rate with traditional currencies. USDC is the
second-biggest stablecoin with a market cap of $37.6 billion.
From Monday to Wednesday, Circle processed $3.8 billion of USDC
redemptions (investors swapping their tokens back into U.S.
dollars) and created $0.8 billion more of the token, Circle's
blog post said, meaning investors have pulled around $3 billion
overall in the three days.
The rapid outflows come after U.S. banking regulators issued a
fresh warning last month that crypto-related deposits in banks
could be subject to liquidity risks. The regulators highlighted
deposits linked to stablecoins as susceptible to volatility
during periods of market stress if there is a rapid influx of
redemption requests.
In the past week, investors have pulled a net $6 billion from
the coin, according to CoinGecko data.
"The events of the past week have impacted the liquidity
operations for USDC," Circle said.
"We will continue efforts to add additional transaction banking
partners."
Moody's analysts said in a note that USDC losing its peg
highlights that the links between the crypto world and
traditional finance are unpredictable, and "could prompt
financial institutions to reconsider working with stablecoin
operators".
"This scenario would increase stablecoins’ dependence on a
smaller number of institutions and constrain their ability to
maintain stable exchange rates," Moody's said.
(Reporting by Elizabeth Howcroft; editing by Sharon Singleton
and Jason Neely)
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