[kersplody]

USDC is managed the Centre consortium, which was founded by Circle and includes Coinbase as a member.

Circle held around $3.3 billion in Silicon Valley Bank, leading to a run on USDC which resulted in it trading for as little as $0.95 on some exchanges today (Mar 10, 2023). This represents around 30% of USDC's cash reserves and 7% of its total reserves. The balance of reserves are held in T-Bills, which are liquid and typically can only be traded during market hours. Coinbase itself has around $2B of USDC on hand. Circle's rumored exposure to Silvergate's collapse is also a concern.

If more than $7.8B of USDC were to be liquidated over the weekend, USDC would be effectively insolvent. Freezing trades until the market reopens limits this. USDC should rapidly stabilize due to being backed by very liquid hard assets, but it will probably lose significant marketshare to Tether.

UPDATE: USDC Liquidity pools on other exchanges are becoming completely drained, pulling down the peg. https://www.reddit.com/r/CryptoCurrency/comments/11oaz39/coi...

[rippercushions]

There's something deeply ironic about a flight to safety in the form of Tether, which has famously been described as being "quilted out of red flags".

But if you can't redeem it and it's not backed by anything remotely approaching normal assets, I guess you can't have a bank run on it either... until the music stops and the insiders propping it up run out of chairs.

[pclmulqdq]

There's something to be said for everyone knowing the risks of doing business with you, and behaving consistently (consistently badly) so that those risks don't change. That's the regime of Tether. Nobody will even be mad when the rug gets pulled.

The federal reserve could stand to learn a thing or two, honestly.

[espadrine]

What could the Federal Reserve learn?

The structure of risk is similar for both Tether and Circle, AFAICT. While USD risk is heavily distributed across many regulated banks and there are measures in place to mitigate bankruptcy, USDC/T is fairly centralized and the fall of a single bank can put the entire currency at risk, cause sudden and extreme inflation (as is the case now), and potentially stop being accepted by even more merchants.

USD risk exists, but seems lower than USDC/T risk, and the same is true for its volatility. All in all, I am not surprised that there are more merchants that accept USD than USDC/T, and the change in methodology that would make the latter competitive would likely require taking a page from the Federal Reserve, not vice-versa.

[pclmulqdq]

Perhaps they could learn that doing consecutive 50-75 bps rate hikes for an entire year will bring with it a lot of adverse effects in a world where they are expected to hike 25 bps at a time?

Nobody pricing interest rate risk would have priced what happened last year correctly - it would have been considered a one-in-a-million event, not a routine response to high inflation.

[mitthrowaway2]

I think what really drove actors like SVB to indulge in speculative yield-chasing was central banks driving rates to zero, saying they'd be near zero for a long time, and as inflation ticked up that they weren't even "thinking about thinking about raising interest rates", and then continuing to hold them at zero while calling inflation transitory as it reached multidecadal highs.

This trained everyone to speculate that the Fed was ignoring inflation on purpose and they should allocate accordingly.

So many people unbuckled their seatbelts as the driver sped through several red lights while saying he wasn't even planning to touch the brakes. When he did eventually slam the brakes a moment later, the passengers flew through the windshield. The driver deserves blame, but blame him for speeding, not for slowing down -- the latter is the only responsible thing he did.

[Analemma_]

This is just not true. I saw many people predicting that after leaving interest rates low for so long and breezily treating inflation as transitory, that the Fed would have to frantically overcorrect with rapid hikes to keep their credibility. And if I saw that multiple times in public places, big institutions with experienced people probably knew it even better, which is probably why SVB is hosed while CDSs at JPMorgan/GS/etc. have barely budged- they knew what they were doing.

[dantheman]

I'd say they should learn that super low interest rates are nonsense.

[pclmulqdq]

The point is that consistent bad behavior is probably better than inconsistent good behavior. That makes you predictable.

[HWR_14]

I don't know anyone who expected sub 50 bps raises each quarter for a while now.

[pclmulqdq]

SVB bought those assets 2 years ago, prior to the yield curve inversion or any of the current macro conditions. Also, the last rate hike was 25 bps, and early in 2022 people were expecting a slowdown to 0-point hikes by now. Prognosticating about this stuff to price long-term fixed-income vehicles is tricky.

[jefftk]

> Nobody will even be mad when the rug gets pulled.

Happy to bet on that ;)

[bananapub]

> Nobody will even be mad when the rug gets pulled.

this is one of the silliest comments I've ever seen on HN.

[bombolo]

USD is backed up by USA army. If a country refuses to accept USD they will have a democracy problem and get attacked.

[tarunupaday]

India is a developing country. Are you somehow under the impression that the US army will attack a coffee shop in New Delhi if they stop taking US dollars?

Even in those parts of Mexico and Caribbean countries where the economy is heavily dependent on US tourism - and the US dollar will be accepted at retail shops; the price difference between paying in dollars and paying in local currency is going to be against the US dollar, and for any significant transaction, you will be better off paying in the local currency.

More to the point, it is true that a considerable part of international trade is conducted in USD. It is also true that the USA tries very hard to keep it like that (more so through economic sanctions than the military might), but it's hyperbole to state that any country that does not accept USD will get attacked.

For example, India and China buy a non-trivial part of their oil in roubles and have not been attacked - so far.

[acomar]

no but expect the US to start invading weaker countries that depeg from the dollar. the US is, at present, the world's reserve currency. that status is what creates the petrodollar. as countries move towards Russia or China, that hegemony is threatened.

[me_again]

What countries peg to the dollar that you think are in danger of being invaded?

[bombolo]

I said "a country"… are you under the impression that "a coffee shop" is "a country"?

How could you mistake a coffee shop for a country?

Seems like you want to misread me on purpose?

[capableweb]

Many "countries" don't do business in USD, they do business in their own currency. Why haven't those countries already been invaded if what you're saying is true?

[xref]

Unlucky for the UK coffee shop that wouldn’t take my USD this morning I guess? Not quite sure what you’re trying to say, if a country doesn’t want to accept usd…they don’t have to

[davidwritesbugs]

His point is that fiat currencies are issued by, and backed by, the state and the that trust is, ultimately, based on its enforcement capacity - the police/courts/US army rather than convertibility with gold or other hard asserts.

[theGnuMe]

I think it’s about peace and trust more than anything. It’s not about war and aggression.

[baremetal]

I think he means that the US military has a habit of invading countries who sell oil in currencies other than the US$.

_Libya_

2008 https://www.cfr.org/blog/libya-shunning-dollar (Libya Shunning the Dollar?)

2011 Invaded

_Iraq_

2000 https://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut... (U.N. to let Iraq sell oil for euros, not dollars)

2003 invaded

[tarsinge]

_Syria_

2006 https://www.aljazeera.com/news/2006/2/14/syria-picks-euros-o...

No direct invasion but proxy war (lessons learned).

[bombolo]

Thanks… at least someone here understands that "a country" and "some guy with a tiny shop" aren't exactly the same thing!

[andrepd]

We're talking about international trade, not an espresso at the corner shop.

[justeleblanc]

Even so. Not every merchant accepts USD.

[wil421]

Except a $100 bill is likely accepted. I’ve been to developing countries that will accept local currency, dollars, and euros. I doubt they would accept any pounds, tethers, or other fake electronic currency.

[fabian2k]

You won't get anywhere with a $100 bill in many developed countries, outside of some very tourist-y areas maybe. At least not in regular shops, of course you can exchange it at a bank. But if you try to order a coffee with US dollars, you won't get one.

[Symbiote]

Pounds have reasonable acceptance in Africa, the Middle East and parts of Asia -- many of those countries either used to be part of the British Empire or a neighbour, so there's trade, emigration, etc. Probably the Caribbean too, though I haven't been there.

In most cases e.g. a French tourist would be fine taking euros, but a British tourist can take pounds and not pay to convert to dollars or euros first.

[dageshi]

Entirely depends on country and business in the country.

I've seen Americans try to pay for taxi's in Thailand with USD, the drivers aren't interested, it's a hassle more than anything. In cambodia on the other hand, yes, they'll take it.

Depends entirely on how stable the local currency is, if it's reasonably stable and well managed then probably they won't be interested.

[drexlspivey]

This is hilarious. Do you really think you can pay with USD in any random country?

[CydeWeys]

This is a really bad misunderstanding of how governmental monopoly on violence affects the acceptance of its currency.

The USD has value because you need to pay your taxes in USD, and if you don't pay your taxes, the government will take away your freedom. It has nothing to do with people in other countries transacting in that country's local currency.

[globalreset]

That's also a myth that doesn't make sense.

If it was about taxes people would just hold something else and converted some temporarily to pay their taxes leaving government with currency nobody wants.

It's all about people's trust and willingness to store savings and make loans in a given current.

[nequo]

> would just hold something else and converted some temporarily to pay their taxes

Wouldn’t this expose those people to exchange rate risk that they could completely avoid by holding USD instead?

[CydeWeys]

> If it was about taxes people would just hold something else

Not following this at all. You having to pay tax in USD means you're going to prefer holding USD and being paid in USD as well. Anything else would be strictly inferior, as now you have to worry about doing conversions all the time.

Note that it's mandatory for taxes to be withheld with each paycheck, and those withheld taxes must be paid in, you guessed it, USD, so you must be paid in USD as well.

[bombolo]

See what happens to countries that decide to sell their oil in € instead of $…

[PinguTS]

So, when will the USA military invade Norway?

I assume per your definition of "country" Norway should be a country as well.

Norway is a major party in selling oil and gas, but doing it so in NOK. Norway is not even part of NATO. At least until now.

So when do you expect an attack by the USA military?

[MandieD]

Slight correction: Norway has been part of NATO pretty much since its inception after WWII, but never joined the EU. Same for Iceland.

Its neighbors Sweden and Finland are EU members whose citizens have recently come to widespread agreement that NATO membership is desirable.

[slaw]

Norway uses US dollar for oil trade.

https://www.investopedia.com/terms/p/petrodollars.asp

[PinguTS]

Petrodollar is just a term. It does not mean that the contracts are in US Dollar. The measurement is in NOK.

"In Consideration of the assignment described under Article 2.1 above, Buyer shall pay to Seller a post tax amount of NOK [zz] ([zz]), ref. Article 5."

https://offshorenorge.no/globalassets/dokumenter/naringspoli...

Also the measurement is NOK: https://www.norskpetroleum.no/en/production-and-exports/expo...

[bombolo]

> Norway is not even part of NATO.

Odd… because the head of NATO is Norwegian.

Your entire comment is completely misinformed.

[capableweb]

Isn't it the same for USDC? USDC is not a traditional cryptocurrency, its issued by a US organization, so I guess this organization would in the same way be protected by USA army, and indirectly USDC as well?

[andrepd]

Nobody has quite explained to me how that is different from deposits at a bank (modulo government guarantees).

[scott00]

Lack of redeemability, lack of transparency, and a history of fraud.

Banks contractually guarantee the right to redeem deposits for cash. Redemption of tether for USD seems to be subject to the discretion of its operators.

Banks are fairly transparent about their assets to the public, and completely trasparent to their auditors and regulators. Tether is an unaudited, unregulated black box.

IMO, tether is no longer a fraud, but it definitely was for a while when they were claiming 100% cash reserves but actually running with fractional reserves. Banks don't lie about their reserves.

[gus_massa]

There is also government regulation, like how they must prove that they are solvent and how much they must have in liquid assets to stop bank runs.

[lordfrito]

Bitcoin fixes this.

Few understand.

[raverbashing]

Tether is pretty much being propped up by thoughts and prayers at this point

[dannyw]

Tether has successfully maintained its peg for nearly 10 years now, despite being an enemy of the US government. That is actually an incredible achievement.

[simmerup]

It helps that you can only turn it into real money in 100k chunks.

[drexlspivey]

You can turn it into real money in any amount by selling it on the market. Market makers will handle the “100k chunks” problem for you.

[simmerup]

Exactly. It’s a neat way to prevent a run, especially if the market makers are acting in cahoots.

[merlinoa]

Tether is better run than any other stable coin. Yes, it could go to zero for many different reasons, but the main reason it gets so much flak (compared to other stables) is because it is less compliant with US regulators than USDC and the other major stable coins. Being less complaint with US regulators is also the reason it is used more than any other stable (highest volume by a wide margin); because people without US bank accounts can actually use it. Tether is a very helpful resource to a lot of people that otherwise would not have access to USD.

[timmytokyo]

If by "better run" you mean Tether is better at surviving despite being a massive fraud [0][1], then I agree with you.

[0] https://www.wsj.com/articles/crypto-companies-behind-tether-...

[1] https://archive.ph/rJifh

[CharlesW]

> Tether is better run than any other stable coin.

Only in the PR sense. A rug pull is inevitable.

On the bright side, when it crashes it'll take what's left of crypto with it.

[merlinoa]

Agree that tether will inevitably go to zero, but I don't think it will be Bitfinix pulling out the rug. Tether is more useful for more people than any other stable for the time being. IMO it will be the last stable standing unless the US regulators go after them hard before going after others, which is very possible.

[acomar]

if you think tether is well run, I have a bridge to sell you

[merlinoa]

Better run than other stables. I have some USDC to sell you. Do you have any tether?

[acomar]

I mean if you set the bar beneath the floor, yeah, sure. but my bar is "not a scam" so hell no. why the hell would I touch tether or any other stable coin following six whole years of reporting on how much of a scam stable coins are? am I supposed to trust their reserve "audits", which amount to a "trust us bro" letter sent to the auditor? are you aware that these verifications of reserves were done by depositing the requisite amount of money into a bank account that was set up for the auditors to have access, with no indication of where the money came from or whether it even belongs to tether? are you aware of their incestuous relationship with bitfinex, a fact that should raise a hell of a lot of questions, especially after the collapse of Alameda and FTX?

you can't sell me USDC because I'm not buying. "X scam is more of a scam than Y scam" is not a sales pitch for Y. it's a statement that should lead you to reconsider why you have any money with any of these people. or, you know, you can be another notch on the belt of the grifters, scammers, and vultures that dominate crypto. I guess the second is a more exciting way to live.

[mtlmtlmtlmtl]

Can't help but revel in the fact that these crypto ponzi schemes are so dependent on the very banks all the cryptobros denounce, as evil holdovers from the past that will be obsoleted by their scam tokens (that no one outside their bubble even knows how to use).

It's so ridiculous I just have to kind of admire it. It's like a cathedral of human hypocrisy.

[loveparade]

Or maybe you just don't understand it? The whole point of USDC is to have exposure to USD and the US banking system, which is supposed to be stable compared to other banking systems around the world. Could that maybe be why it's called USDC? Hmm.

If the US banking system starts failing, it absolutely should affect USD stable coins backed by exactly this banking system.

[FabHK]

That's funny.

The USD is entirely unaffected. Some deposits at certain banks are affected for large (mostly professional) holders. Retail investors will be made whole (up to 250k), thanks to this banking regulation thingy you might have heard of.

USDC is meant to mirror the USD (sure, with its concomitant FX and inflation risk), but it is certainly not meant to introduce credit risk vis-à-vis some bank most people hadn't heard of last week.

[hailwren]

You’re aware that ~$150B of $200B SVB deposits are not covered by FDIC insurance, correct? I don’t think SVB is going to end up 0, but pointing at 25% of investments being safe and saying “look regulation works so well” seems absurd.

[lukeschlather]

All the people involved are institutional investors. 0% of people who have USD savings under $250k are affected by this. On the other hand, anybody who has a significant portion of their net worth tied up in cryptocurrency is affected by this.

[101011]

Minor correction, people employed by companies that banked with SVB are also heavily affected here.

[radlad]

... and all the people and companies those companies banking with SVB have to pay?

[lxgr]

It‘s a bit like expecting physical USD bills to spontaneously combust due to whatever market forces.

The value of one USD stablecoin (measured e.g. in various commodities) might well go down, but the redeemability for one USD never should, regardless of the economic environment.

[re-thc]

Can't you just buy USD directly? How does that help? What does the C part of it do?

[loveparade]

No, in many countries you cannot buy USD directly. You also cannot store USD in a local bank account. And in various places it's explicitly forbidden to hold USD as savings because it would devalue local currency if everyone started transacting in USD instead.

So, the "C" makes USD exposure available to anyone worldwide, assuming you have e.g. an Ethereum wallet.

[pHollda]

If anyone doubts that this is just a theory, I can confirm it. I live in third-world countries and use USDC exactly for this.

[capableweb]

I have family in third-world countries, and usually have them buy me flight tickets when I want to visit them. Cheapest way and easiest for them to withdraw, is me sending them USDC. Some of them use USDC directly to exchange with friends for goods and services, others manage to sell them P2P in their country for USD, which they can then trade for local currency.

Messy, inefficient and UX could be way better, but it works and is cheapest for everyone involved.

[FabHK]

I have lived and travelled extensively in second and third world countries, and almost never had a problem buying or selling USD. Well, in some places there were indeed capital controls (Argentina, China), but that's rare, and I doubt use of USDC is legal then for the circumvention of regulation (which is basically the only use case of crypto).

[Scoundreller]

The big one is that many countries do offer foreign currency accounts, but don’t properly hold reserves for them, so the security is there until it isn’t.

[FabHK]

So a bit like stable coins? And do you have a source?

[vasco]

So you are saying that there are countries where USDC is legal while opening a foreign brokerage account like IBKR and converting your currency to USD is illegal? And this is not just a perceived loophole? Could you give an example of a country like this so I could google?

[Ekaros]

Important question is that what would happen if someone started asking pointed questions? About why do you transact in this and doesn't it go against laws. Would the stance actually hold...

[Gare]

Yeah, how is this different than black market trading (which happened a lot in ex-communist countries including mine, but the currency traded was usually German mark).

[re-thc]

Except it does a lot more than that as highlighted here. It's not just a USD + exposure. It's pretend to be USD + its own set of risks. I'd rather buy USD or if you can't then do something else.

[silasdavis]

It is also kind of an abstraction over cash and treasury bonds. A more liquid fractionalised cash/bond unit.

Though that seems to have been the problem here.

The original idea with a 100% collaterilised peg was that the entire reserve would be cash. Somewhere along the way treasury bonds were considered cash equivalent. Which on the face of it seems sort of reasonable but clearly they do have a different risk and liquidity profile. This allows the centre consortium to earn a yield.

So I'm not sure I think a USDC is a dollar, but also I'm not sure it's particularly different to what banks do with deposits to earn a yield.

One difference is you can reinvest the same USDC to earn a yield while the underlying backing USD also earns centre a yield.

[makomk]

Having the entire reserve as cash wouldn't exactly help here - imagine if 30% of USDC's total reserves was in Silicon Valley Bank, rather than just 30% of their cash. (I think I've pointed out before in discussions of Tether etc that stablecoins can't safely just hold their rexerves as cash in a bank account because banks can and do fail and FDIC protection basically does nothing at this scale, but I wasn't expecting it to be demonstrated quite so spectacularly.)

[re-thc]

The difference is at least with banks e.g. SVB here you get back your 250k. When these coins die you get 0.

And if only we're true to the "original idea" (whatever that might be). As seen with lots of coins / exchanges it's been a front to do something else.

[renonce]

> The original idea with a 100% collaterilised peg was that the entire reserve would be cash.

What is cash? Banknotes? You can't store 500 million pieces of $100 banknotes easily or safely.

Cash usually refers to deposits at accredited financial institutions like banks. Effectively this is an amount of money that the bank owes to Circle. The bank deposits money elsewhere, and the central place where all the money is distributed is the Federal Reserve Bank, the central bank of USA, that can never go bankrupt. OTOH, treasury bond is money that US Treasury owes to Circle, so they are not fundamentally different than cash, and in some cases it's even safer since US Treasury bonds are usually regarded risk-free.

[seanhunter]

Stablecoins are a cryptocurrency that conforms to the ERC-20 standard[1] so they can be used in blockchain applications that want something that implements that. USDC/USDT are therefore the closest things to USD that can be used in that way.

Obviously people differ as to the utility of those applications but that's what the "C" gets you. You can do those things if you want to. Of course there's quite a lot you can do with actual dollars that you can't do with USDC so you give up a lot also.

[1] https://ethereum.org/en/developers/docs/standards/tokens/erc...

[EVa5I7bHFq9mnYK]

Most stablecoins conform to TRC-20 standard, on TRON network. Ethereum use is being phased out because of high fees.

[csomar]

A more legitimate use case. An Ethereum contract that converts ETH to USDC. Say you are selling something (an item, security, service or whatever). You can accept payment in any token (in your smart contract) and the token will be converted to USDC.

[eternauta3k]

Hard if you're in a country with currency exchange restrictions like Argentina (a big adopter).

[searchableguy]

USDC is an ERC20 token on the blockchain. This is required to work with smart contracts and dapps. You can swap USDC for any on-chain asset using uniswap or mix them up using a mixer like tornado cash. It also escapes any capital controls to hold USD which is a benefit for those who are outside US and live in poor or draconian countries.

[Tenoke]

You cannot buy USD on chain to directly transact with it and other crypto, no.

[renewiltord]

You can have smart contracts off it. You can't have a smart contract off USD because USD is not a thing on the blockchain.

[mtlmtlmtlmtl]

In what universe is the US banking system more stable than other places in the world? Compared to 3rd world countries?

[beebmam]

Well, I'm pretty sure all credible banks in the US are all insured (both explicitly with FDIC and implicitly far beyond that) by the US government. That's a pretty big thing

[mtlmtlmtlmtl]

That doesn't make them stable. The 2008 financial crisis was literally caused by big US banks. They then had to be bailed out.

This is not a symptom of a stable banking system. It's a symptom of the banks having a disturbing amount of power over the government, which is not a good thing. They were able to conduct what is essentially fraud at a massive scale with impunity because they knew the gov would bail them out when shit hit the fan.

I really don't understand what's so "stable" about this.

[fladrif]

Well whether or not you think banking / government cooperation is a good thing, the fact of the matter is that even when large catastrophes occur, the system is brought back up on its feet.

You can't say the same for crypto systems, luna / terra being a very recent example.

[_5uxp]

I'd say not majority of the banks or anything like that but top ones like Goldman Sachs (Apple's choice) is more stable than all 3rd world countries and their CB too. Because GS has money printer on their side, literally.

[mtlmtlmtlmtl]

On the other hand, you could throw a dart at a random non-US WEIRD country and find a more stable banking system..

[basch]

How is a stable coin a Ponzi scheme?

[mtlmtlmtlmtl]

How is a stablecoin stable? They're stable until you get rugpulled.

[swalsh]

That was an Algorithmic Stablecoin. USDC is not, it was backed by dollars in banks with a 1:1 backing and 3rd party audited.

[mtlmtlmtlmtl]

Many the mortgage bonds in the 2008 crisis were AAA or AA rated by a "third party". And they were dogshit.

Is it audited by the SEC or some "auditing firm"?

[basch]

I’ll repeat. How is a stable coin a Ponzi scheme.

A Ponzi scheme pays a dividend or share of fake “revenue.” Stablecoins don’t make money, unless lent out.

[Analemma_]

How'd that work out for it.

[EVa5I7bHFq9mnYK]

"was backed" hehe

[senttoschool]

Plenty of stable coins have been proven to be ponzi schemes.

Terra/Luna anyone?

[dd36]

When its assets don’t exist.

[Hizonner]

That's not what a Ponzi scheme is.

[tylersmith]

I think there's a shockingly large number of people that think Ponzi scheme just means fraud.

[dd36]

Then what is it? A ponzi scheme is inherently an embezzlement.

[pcthrowaway]

Is a bank a ponzi scheme if its assets don't exist also?

Like if a bank has $10B in customer deposits and one of their armored truck drivers escapes across the border with $2B, then some customers can't be paid back when they try to withdraw, does that make it a ponzi?

[re-thc]

If you can't be paid at all it's not a Ponzi. The point is to rely on newer funds to pay the older requests.

[selestify]

Banks also rely on “newer funds” (from loan payments) to pay “older requests” (customers withdrawing their deposits). When withdrawals from old requests rise so much that they can’t be covered by new funds, banks collapse.

[basch]

Not just to pay old requests. To pay revenue sharing / dividends / interest to shareholders. A Ponzi scheme is repurposing inflows to appear as revenue to a fake business.

[pclmulqdq]

A ponzi scheme is just one step along the path to true decentralization.

[mtlmtlmtlmtl]

It's kind of telling that I truggle to tell whether this is satire. I could totally see a cryptobro unironically making this claim.

[pclmulqdq]

This was satire but it's how a lot of crypto projects are run.

[WeylandYutani]

Crypto never became a currency. Fundamentally whatever Satoshi preached never materialised.

[EVa5I7bHFq9mnYK]

A lot of people pay for goods with satoshis, so it did materialize, maybe slower than some imagined, but it has nowhere to rush.

[cornholio]

It was all fun and games while the crypto bubble was inflating. You basically could do no wrong, any mismanagement would be hidden away by the exponential appreciation of the underlying assets; just hodl until the next bull run and everything would be fine again.

When things stabilize and start going down, it's like the morning after the frat-party, bad things come to light. Crypto is fundamentally a negative sum game, it takes enormous resources to run and has generated a large number of self-minted millionaires that have cashed out and lamboed their earnings. There is very little actual marketable utility that crypto provides that could cover these large outlays, perhaps with the exception of facilitating money laundry and illegal transactions. I guess that's a business, but (hopefully) not a multi-trillion business suggested by the bubble's peak.

So it's inevitable the game must end with someone holding the bags.

[jleahy]

You never know who's swimming naked until the tide goes out.

[pibechorro]

Lol crypto is not what people launder with, its cash and major banks that have been caught over and over again taking dirty deposits. Cartels don't trade in public blockchains. Your ignorance is stunning.

[johnbellone]

You could say the same thing about SVB and the last 10 years.

[cperciva]

The balance of reserves are held in T-Bills, which are liquid and typically can only be traded during market hours.

Ok I'll buy that if you or I wanted to sell treasury bills, but... if a company needs to liquidate $10B of treasury bills over the weekend, can't they just call up the CEO of JPMorgan and say "hey we'll give you 10 basis points over Monday's 9AM rate" and make a deal happen?

[vasco]

They can try, but if JPMorgan CEO is getting such a call it's going to be painful for you and you're going to be in a bad place for negotiating those 10 basis points.

[kersplody]

They can try, but no guarantees.

[cperciva]

Fair enough. Technically there's no guarantee that the treasury bill market won't lock up on Monday morning either, but I agree that's a more remote possibility.

[SilasX]

> Circle held around $3.3 billion in Silicon Valley Bank, leading to a run on USDC which resulted in it trading for as little as $0.95 on some exchanges today (Mar 10, 2023).

It dipped as low as .82 on Gemini. I used the chance to buy some to settle a debt denominated in USDC on Compound, though I haven’t yet paid it back because transaction fees on the ethereum network surged too.

DAI fell below .90 even though it’s so overcollateralized that even the 100% loss of SVB funds shouldn’t make it insolvent: https://news.ycombinator.com/item?id=35105876

>USDC Liquidity pools on other exchanges are becoming completely drained, pulling down the peg

Nit: liquidity pools (at least of the kind described in the link) are decentralized and don’t live on an exchange.

[drcode]

Circle used SVB, not Coinbase

(I'm no expert though, correct me if I'm wrong)

Edit: Parent comment is now correct

[kersplody]

Edited parent.

USD Coin is managed by a consortium called Centre, which was founded by Circle and includes members from the cryptocurrency exchange Coinbase. Circle used SVB.

[xbruteforce]

There is USDC liquidity on Coinbase. Which may not be redeemable for USD over the weekend because of this news.

That's why Coinbase are stopping withdrawals.

[ashwagary]

Looks like USDC dropped all the way down to $0.85 on some exchanges.

[MrFoof]

USDC, FRAX, DAI, USDD and USDP all seem to be having a moment.

As someone who only observes crypto, the past 4.5 hours (at my time of writing) has been interesting to watch.

[xtracto]

Deploying more capital, steady lads!

[xref]

I know we’re all Extremely Online here, but if you missed this deep cut it’s what Do Kwon said…as Terra was collapsing

https://twitter.com/stablekwon/status/1523733542492016640?s=...

[xbruteforce]

Exactly! The situation should be similar for all other stable coins.

DAI has quite a substantial percentage of USDC in their reserves as well.

We could witness another death spiral. Let's see how events turn out to be.

[carlsborg]

> The balance of reserves are held in T-Bills

Similar to SVB, from what I understand. SVB parked several billion in treasuries when rates were at ~1.6%, when interest rates went up, that portfolio drew down, they exited with a loss, this triggered a run.

So if Circle has 70% of its reserves in T bills, they possibly took a market to market loss too, depending on how they were hedged.

(Disclaimer: i have not seen SVB balance sheet, nor Circles.)

[delaaxe]

Wasn't SVB in 10 year mortgage-backed securities whereas Circle is in 3 month bills?

[carlsborg]

Hmm you're right about the Circle balance sheet. It is/was indeed short dated bills not notes. https://6778953.fs1.hubspotusercontent-na1.net/hubfs/6778953...

Although, still room for losses with those numbers ($50B) https://ycharts.com/indicators/3_month_t_bill, and make them more likely to want to hold to maturity.

[makomk]

Not nearly the same kind of losses, I don't think. The drop in value of bond-like investments is heavily affected not just by the change in interest rates but also the duration: long duration bonds drop much more heavily because the total amount of interest people now expect over their life is much higher. The interest rates on three-month Treasury bills has barely increased over the last few months (which is obviously the longest they could've been holding any for), and then taking into account the duration and the interest they're receiving they shouldn't be looking at mark-to-market losses at all really.

[ptero]

I agree with your conclusion: holding 3-month t-bills virtually isolates you from interest rate risk.

But not because rates do not change (they do, a lot: for example 3-month rate jumped by over 0.5% in 2 weeks of Oct 2022). But due to the short duration such change barely affects the remaining interest paid by each bill, which is what determines bill's price.

[carlsborg]

Agree with the first part, short duration implies lower volatility. But we know that T-bills are zero coupon bonds, so holders are not receiving interest payments along the way, the interest is built into the redemption price. So forced selling because of a run for example, at a bad time, can mean a loss on the price and therefore no interest.