USDC depeg – Everything we know so far as contagion spreads from TradFi banking

What we know so far about the SVB collapse and USDC/DAI depeg (updated):

Crypto firm Circle reveals $3.3 billion stuck in SVB
DAI/USDC depeg as stablecoin pressure continues after Silicon Valley bank collapse
Binance suspended USDC conversions due to volatile market conditions
Coinbase suspended USDC conversions “over the weekend while banks are closed”
SVB contagion: crypto firms hurt include BlockFi, Circle, and Avalanche
Circle $1 billion in net redemptions since the SVB collapse
On Saturday, March 11, during Asian afternoon hours, DAI, the decentralized stablecoin of MakerDAO, reached its lowest value ever at 0.88 cents
Contagion is thought to be part of “Operation Choke Point,” a remnant from Obama-era Justice department policy
Tether, the stablecoin USDT, surged momentarily on news it is unaffected by SVB

TradFi banking contagion

A day after the west-coast bank Silicon Valley Bank (SVB) was placed into federal receivership and b both deposits and withdrawals ceased, Circle, the issuer of the stablecoin USDC, lost its $1.00 peg to the US dollar, prompting fears of a run on the stablecoin similar to what happened during the wind-down of UST in the wake of its depegging from Terra Luna.

Overnight, USDC lost 14 cents from its $1.00 peg, tumbling to as low as .86 cents.

“Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB,” Circle said in a tweet.

“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 the guidance provided by state and Federal regulators.”

That news followed fears that the contagion from the SVB collapse would also affect other crypto institutions, which it has, with both BlockFi and Avalanche also revealing connections to the distressed bank.

The news has prompted renewed fears that fiat on/off ramps in crypto can become “choke points” for the government to target the crypto industry at large.

Twitter Reactions

LOOK OUT BELOW pic.twitter.com/Cm72Ec854S

— beeple (@beeple) March 10, 2023

CZ took to Twitter to speculate if it was time for exchanges like Binance to start buying up distressed banks.

Leveraged positions open up

Some traders are purchasing USDC in anticipation of a potential 10% gain if the tokens return to the intended dollar mark. These traders are betting on this gradual recovery to $1 due to the relatively cheap price of USDC. Leveraging could potentially amplify returns for these traders, as evidenced by the futures funding rates on Bybit, which reached as high as 0.3% on Saturday morning.

Opened $114k $USDC long at $0.87

Lets go.

You know shit is hitting the fence when you are lev trading a "stable" coin https://t.co/TPEUbfM80b pic.twitter.com/Yl3KnGBlXf

— Defi_Maestro (@Defi_Maestro) March 11, 2023