[dragontamer]

Short term treasuries still take time to change into US Dollars. A bank run could make USDC insolvent in the short term, in theory.

That's why you have FDIC insurance to cover the time period between say, a 30 day treasury and the worst case bank run.

That being said, such an event hasn't really happened in decades. So it's relatively low chance of happening.

[thebean11]

> That's why you have FDIC insurance to cover the time period between say, a 30 day treasury and the worst case bank run.

Well, usually banks use your money for much riskier loans (business loans, personal loans, mortgages) which is why you need FDIC. Not because treasuries take too long to sell.

The volume on US treasuries is like half a trillion a day, so it shouldn't take very long to liquidate even large amounts of USDC's holdings..

[wolongong942]

Even worse is that a lot of these stablecoins have their funds deposited with Silvergate, a niche crypto bank that makes its money by lending to people like Michael Saylor. Their stock is down about 50% over a few months.

[dragontamer]

> The volume on US treasuries is like half a trillion a day, so it shouldn't take very long to liquidate even large amounts of USDC's holdings..

US Treasuries are down like 10% this year.

Yes, a bank can liquidate, but at a loss, a 10% loss in this case. The bank would rather hold-onto maturity, which could be 30-days or 90-days for some of the shorter bonds.

[thebean11]

Short term US treasuries specifically. They are pretty insensitive to interest rate changes since they are close to maturity.

[dragontamer]

6-month US Treasuries were 0.36% APY on January 19th, 2022.

1-month US Treasuries are 1.13% APY today, June 14th, 2022.

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So if you had bought a 6-month US Treasury on Jan 19th, you'd have a 1-month Treasury with .36% APY.

That's worth much much less than the current 1-month US Treasuries that are available, so you'd be forced to sell at a loss if customers requested their money back.

[thebean11]

> That's worth much much less than the current 1-month US Treasuries that are available

It's not 10% less, or anywhere close to it. You are only missing out on roughly (1/12) * (0.0113 - 0.0036) * (treasury amount) vs a 1 month treasury bought today..I'm having trouble finding a price chart for 1 month treasuries.

6-month is obviously more sensitive to the rate drop than 1 month, but the 10% number you are referencing is almost certainly for long term treasuries, not short term..

[dragontamer]

BND is down 12%, BSV is down 6.5% YTD.

BND is not "just" long terms, its a mix of all kinds of bonds. BSV is a mix exclusively of short term (~5 years or less).

VBLAX, Vanguard's long-term bond ETF, is down 23% YTD.

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Given how BND is largely composed of a mix of US Treasuries (of many different maturities), I think the 10% quickie estimate I gave earlier is correct. I'm buying/selling these things in my portfolio, so I've got a good idea of how they're performing.

[gizmo686]

Short term liquidity problems are handled by the repo market, where banks can take short term loans from other banks to cover withdrawals. In a crisis situation the lender of last resort (e.g. central bank. So federal reserve for USD) will step in and make the loans.

The FDIC is designed to cover solvency issues, not liquidity ones. It does not kick in until afterva bank has failed.

[conanbatt]

Treasuries are one of the most liquid assets in the world. The question is if they could crash in value while simultaneously maintaining the dollar value, that could break a peg.

[thebean11]

Since they are short term the dollar amount wouldn't change much, even with big swings in interest rates. USDC is also tied to the dollar value (not inflation or interest rate adjusted) so I don't see how this could happen

[FabHK]

FDIC covers individual investors up to a quarter million or so, if I'm not mistaken, not institutional investors that have deposited $bn 50.

[lupire]

FDIC is for when the money is gone, not frozen. FDIC protection means you get paid back when the dust settles, not immediately.