In the early hours of today, the second largest stablecoin, USDC lost its dollar peg. According to Coinmarketcap, USDC is presently trading at $0.9167, a few hours after its issuer Circle announced that Silicon Valley Bank (SVB) didn’t process its $3.3 billion withdrawal.
As earlier reported by Binbits, Circle attempted to withdraw the remaining part of its $40 billion deposit in SVB yesterday. However, the firm’s efforts were in vain as the bank refused to process the withdrawal request. More so, the report established that SVB is one of the six banking collaborators of Circle, holding 25% of USDC’s reserve.
Recall that the California Department of Financial Protection and Innovation shut down SVB for unknown reasons. Despite shutting down the bank, the regulatory body assigned the Federal Deposit Insurance Corporation to safeguard deposits under insurance.
How USDC struggles with SVB has affected the stablecoin sector
Additionally, Circle’s exposure to SVB has affected its stablecoin, sparking an unrest in the stablecoin sector. Presently, other stablecoins in the industry has lost their peg due to their collateral connection with USDC. Stablecoins like DAI, USDD and FRAX have lost their pegs in reaction to USDC’s struggles with SVB.
According to findings, DAI has a significant exposure to the stablecoin in question. About 51% which is about $4.42 billion of DAI’s reserve is dominated by USDC. Shortly after Circle’s announcement regarding SVB, DAI plunged as low as $0.8970.
Presently, DAI is showing signs of recovery as it trades at $0.9391 which is still below its peg. Further, Tron’s USDD and FRAX both went down to as low as $0.9267 and $0.8998 respectively as they responded to USDC’s plummet.
What’s next for the stablecoin industry
Prior to SVB’s meltdown and the eventual dip of USDC, the stablecoin sphere has generated huge attention in recent times. Last month, New York state’s financial regulator told Paxos to stop issuing BUSD, a stablecoin associated with the world’s largest crypto exchange by trading volume, Binance. Following the order, Paxos revealed that the U.S. Securities and Exchange Commission in a notice indicated that Paxos should have registered BUSD as a security.
Accordingly, the revelation sparked an uproar among crypto enthusiasts that argued that the SEC is pursuing an hidden agenda against the industry. However, the SEC in its defence cited the Howey test to back its claim. The recent USDC dip occasioned by SVB’s meltdown could turn more attention from regulators on the stablecoin sphere.