From The Wall Street Journal, March 11:
Spooked investors cashed out more than $2 billion worth of USD Coin, knocking the dollar-pegged token below 87 cents
A major cryptocurrency operated by Circle Internet Financial Ltd. meant to mimic the value of the U.S. dollar dropped sharply after the company said it had $3.3 billion tied up in the collapsed Silicon Valley Bank.
USD Coin fell below 87 cents on Saturday morning, according to data from CoinDesk. The virtual currency, known as a stablecoin, is designed to trade exactly at $1. It is backed by real U.S. dollars and short-term government debt, and sits at the heart of cryptocurrency trading.
Breaking its peg with the dollar has the potential to send shock waves through the cryptocurrency world still reeling from the collapse of FTX. For crypto traders, the decline in the value of USD Coin is reminiscent of the worst moments of the 2008 financial crisis when the Reserve Primary Fund, a money-market fund that most investors treated as the equivalent of cash, “broke the buck” in the wake of Lehman Brothers’ failure and saw its net asset value fall below $1.
Another stablecoin, Dai, also broke from its $1 peg, trading as low as 90 cents Saturday. Dai, the fourth-largest stablecoin worth around $5 billion, is partially backed by USD Coin, also known by traders as USDC.
The USD Coin reserves remaining at Silicon Valley Bank comprise about 8% of the roughly $40 billion in assets backing the token, according to Circle. Circle has said it maintains around 20% of its holdings in bank deposits and 80% in three-month government securities. Without access to the bank deposits, Circle may face difficulty meeting redemption requests.
Like banks, stablecoins are subject to runs. If holders of the coins believe there aren’t enough dollars in reserve, they may rush to exchange their coins—or to sell them to someone else. That selling has driven down the price.
However, some institutional cryptocurrency traders said they hadn’t been able to redeem USD Coin for cash and didn’t expect to until Monday.....
....MUCH MORE
— Elon Musk (@elonmusk) March 11, 2023
