Circle moved assets out of somewhere and into BNY Mellon last week. Where is that somewhere (Was it SVB, since 3.3Bn “remain” in SVB?). When did they move money out of SVB and how much?
Did Circle and USDC trigger the sudden liquidity gap in SVP that triggered the fire sale of 21B at a loss? Is the crypto panic triggering the bank runs?
“Last week, we took action to reduce bank risk and deposited $5.4bn with BNY Mellon, one of the largest and most stable financial institutions in the world, known for the strength of their balance sheet and as a custodian.
$3.3bn of USDC’s cash reserves remain with SVB. As of Thursday, we had initiated transfers of these funds to other banking partners. ”
>Did Circle and USDC trigger the sudden liquidity gap in SVP that triggered the fire sale of 21B at a loss?
It seems unlikely that would be the case, 5.4B would represent only 2.5% of their AUM at the time of failure. However the Fed did reduce the bank cash reserve requirement to 0% in March 2020, so it's technically in the realm of possibility... but having to sell off assets after a 2.5% drawdown is analogous to being 40x leveraged.
It would be unbelievably poor risk management if this were the case, and seems more likely a much larger event than a few crypto companies (which are small in the grand scheme of things) withdrawing deposits.
I believe their last earnings call was what precipitated the fear in the bank and ultimately what caused the big spike in withdrawals that led to them running out of immediately free cash.
I think on Thursday, SVB saw cash outflow requests over $40b in one day. USDC peg is so far below 1 right now there will definitely be a lot of par arbitrage Monday trying to withdraw.
Hopefully it doesn’t take longer than a day for them to settle treasury trades, and maybe some people have lost the keys to their crypto. They could also possibly have a line of credit with instant settlement assuming they’re truly solvent with marketable securities at market prices.
3 month (or less) Treasury Bills are damn close to cash. I don't believe they lose value in practice, not even in the rapidly raising interest rate environment of the last year.
The problem at Silvergate and Silicon Valley Banks is that they bought 10 year or 30 year bonds, not 3 month bills. Its a completely different composition, with completely different properties.
The assets in their HTM portfolio did not all appear in March 2021 and it appears most of it was in various (C)MBS which likely paid a few bp more than comparable maturity treasuries. Unfortunately, the duration (sensitivity to change in interest rates) of mortgages extends in an increasing rate environment (less people prepaying) and so the portfolio probably lost a little bit more than comparable treasuries.
No that's not it. You can sell the bonds any time. But now they're worth considerably less because interest rates are much higher now. They locked themselves in at rate that are now terrible for 10 years.
No, rvnx is correct. SVB held many of these assets as "hold to maturity" assets. Point being, if all of their customers didn't need to withdraw their money, then SVB would have been fine, as they could have safely held these assets to maturity and then redeemed them for full face value.
The problem is that just when their long duration bonds lost value is also when their startup-heavy customer base needed their money out for expenses, and with VC funding dried up they weren't getting new deposits. SVB's problem was that their liquidity issue became a solvency issue when it became public that they were forced to sell their long duration bonds at a steep loss to cover withdrawals.
> No, rvnx is correct. SVB held many of these assets as "hold to maturity" assets.
He is wrong. This is just an accounting term / treatment. You can still sell them, and will obviously recognize the loss when you do. Had they been 3 month bonds, they could have been sold for basically full value and remained solvent.
Yeah, obviously the bank would have no problem if there were no bank run. But the reason there was a bank run was because the didn't have money because they locked their funds into bonds that subsequently lost all of their value.
Whether they were "held to maturity" or not, the fact is that they lost value. Not that they were locked away for 10 years untouchably.
There are a significant amount of other banks that are in the same situation with respect to long term bonds that have lost a lot of their value due to rising rates.
The difference for many of them, compared to SVB, is that they have a much more diversified deposit base, so they don't have the same dynamic of the majority of their depositors all needing their money out due to VC funding drying up.
The fact that bonds lost value is really not an issue if they didn't need to liquidate them before maturity. After all, someone deposited $100, and SVB turned around and bought a bond for $100. If they were able to hold that bond to maturity, they would get $100 dollars back to make the depositor whole. The problem is that depositor wants their money back now while the bond is worth less than par value.
> After all, someone deposited $100, and SVB turned around and bought a bond for $100. If they were able to hold that bond to maturity, they would get $100 dollars back to make the depositor whole.
No. In your example, someone deposited $80 and SVB turned around and bought a bond for $80. In 10 years, that bond will be almost certainly be worth about $100. Because it’s reliable, theu can use that value for some of their long-view bookkeeping and projections, but it’s still an $80 asset purchased for $80 and worth $80.
Some months later, the market for those bonds starts to shift. That bond will still be worth $100 eventually, but now trades for only $70.
This puts SVB into a different risk position than they were previously. While their books still reflect a $100 asset in 10 years, they actually hold less value in assets now than they started with and are more vulnerable to a run than they were previously.
Where they could have immediately sold that $80 bond to meet an $80 obligation, they can now only sell it for $70. That’s a problem. It’s a bearable problem as long as nobody asks for too much money at the wrong time, but the fact that they’re so much more vulnerable invites people to do exactly that, in order to make sure they’re not caught as the last one out the door.
Yes, the bank could hold the bonds to maturity to get $100 back in 10 years. But that $100 dollars in the future is worth much less than having $100 now.
SVB depends on earning net positive amounts on their interest income to continue operating. Turning $100 into $100 10 years later is the same as turning $100 into $90 now (illustrative numbers. The issue is of course varying interest rates).
No, the problem was that VC's led and pushed for the panic withdraw of all funds.
The bank would have had no problem if it was just the case of fewer new deposits. As to expense draw downs, those would have been ongoing and part of normal business operation.
> No, the problem was that VC's led and pushed for the panic withdraw of all funds.
If you knew that your bank was insolvent, would you withdraw your funds before SHTF? Or would you twiddle your thumbs until everyone else did that, and your accounts got frozen, with you sweating bullets over whether or not you'll be taking a haircut on your deposits?
Would your withdrawal be a 'panic', or simply a rational decision to not be the moron left holding what might be an empty bag?
It was a panic becaaue they realized the bank was vulnerable and so their money was vulnerable. This wasn't an irrational panic, it was the kind of panic you experience when being chased by a bear.
But surely there's a high chance of rates rising and your collateral falling in value over a ten year duration?
It seems like madness to leave yourself totally exposed to a situation like this. Rates rise, your investments fall and your depositors want their money back doesn't sound beyond the realms of the imagination.
So weird to think that near-zero interest rates are the best you can do for the next 10 years. I'm pretty sure everyone way saying "lock in this low interest rate before they go up again!"
The creators of USDC could destroy their own coins to restore the 1:1 reserve peg. I doubt they'd do it, but it would immediately restore confidence.
Send them to a null address or commit to burning them in software. If they can restore the reserve, they could remint them.
I'm a crypto bear (with modest crypto holdings for diversification), and I think this is an opportunity for these folks to step up to the plate and show they can meet these sorts of challenges. If you can successfully navigate a bank collapse, then maybe you deserve a seat at the table. I'm not holding out my hopes for USDC though.
IMHO, they are justifiably confident that this will all blow over in a few days, and that their deposits will be available to them soon after, albeit with a few percent missing.
But I concur - they are showing their true colors by not defending the peg.
it's not their job to defend the peg on the open market (not to mention impossible by definition), their only product is the possibility to redeem each USDC for $1 through a circle account. We will see on Monday if they can deliver.
I’m not sure I follow. Circle don’t hold tens of billions of USDC: USDC is minted when they receive USD at a one-to-one ratio. What coins are you proposing they burn? If there’s $10bn USD missing they’d need to burn $10bn USDC.
> The creators of USDC could destroy their own coins to restore the 1:1 reserve peg. I doubt they'd do it, but it would immediately restore confidence.
Why should they? USDC is not an algorithmic stablecoin. For once, it's actually not a failure in crypto that lead to this depeg.
I'm not even sure they are allowed to do it by their own contracts with their clients as long as it is not clear that the USD at SBV is really lost.
There is no fee to covert USDC to USD. So as long as you buying USDC and depositing it into Circle is less than $1 per USDC you make profit. As long as you make profit it makes sense to arbitrage as much as you can.
that’s if you have a Circle account which effectively no individual has access to. if you convert USDC to USD on Coinbase or another exchange you’re paying the market rate
Coinbase actually does it 1:1 by proxy from Circle: you don't have to "trade" USDC-USD. They aren't right now, but they normally go above and beyond by being willing to do it on weekends, while Circle itself only operates on weekdays, and they don't want to stake their own fate towards that, so they said they are pausing doing that until Monday.
Do you have a source for that? It seems like it would generally be in Coinbase and Circle's best interest for people to arb USDC (at times when redemptions are live).
No, I don't mean that. CBP is fine for them, since they earn fees on it.
If you pull your funds off CB into a DEX and then do the arbitrage, that's when they get unhappy.
Yes, that's happened to someone I know. Their account was locked as soon as CB figured out that is what they were being used for. They don't like just being a fiat ramp since it doesn't earn them anything.
The arbitrage the comment was talking about would be done by people with Circle accounts. If you don't have an account it would be in your interest to sell your USDC for as close to $1 possible. This will inflate the value of USDC on the open market until Circle account holders start to fear that they will be holding the bag.
if major usdc holders who have a circle account were primarily concerned with tiny arbitrage plays they wouldn’t be holding a stablecoin earning zero yield when t-bills pay 5% to begin with
This isn't a tiny arbitrage play because you can repeatedly do it for as long as circle is liquid. Even if you don't hold a lot of USDC it's selling at a discount on the open market. If it goes into a full bankrun all circle accounts will be fighting over what share of the $43.5 billion reserves that they will get.
Yes, by creating a synthetic - you short BTC/USDC and long BTC/USD. This will create a USDC/USD synthetic. Both BTC/USDC and BTC/USD can offer up to 100x leverage, so the synthetic USDC will also be up to 100x. Of course, there is a long list of risks in such a trade, and if you need to ask about it it's not for you.
It seems like the point of that comment to look knowledgeable while providing no actionable information[2] and falsely implying it’s too difficult[1], so I’m guessing no, as that would defeat their seeming objectives in making the comment to begin with.
> I can't see this not returning to it's peg by the next news cycle. It's free money.
But isn't this the problem?
If over the weekend billions of dollars of USDC is purchased at less that $1 from people expecting to cash in on "free money" come Monday, Circle is going to have to be able to ensure that that actually happens, which could easily require more liquidity than remotely possible (edit: I just realized that Circle claims that back 1-to-1 with liquid assets).
Volume right now in USDC is at record highs. If all of those people are hoping to make free money on Monday, and it turns out Circle is unable to maintain that, then the entire USDC will crash almost instantly once people realize it's impossible to keep it pegged.
I'm far from a crypto expert so could you clarify what I'm missing?
> I'm far from a crypto expert so could you clarify what I'm missing?
USDC isn't an algorithmic stablecoin or backed by non-cash assets. It is a coin that is redeemable 1:1 for cash, always. They have approximately $40b in coins and is only "short" $3.3b. Right now the first 91% to redeem can still get a full dollar, not everyone who redeems gets 91 cents.
People who have no idea how it works are panic selling fearing a crash. Other people are buying up as much as they can because you're effectively selling someone a dollar bill for 95 cents, a deal I'd take every day.
> It is a coin that is redeemable 1:1 for cash, always.
That's what I realized after doing some more research. This is really a test of Circle's claims. If circle really has 1-1 liquid assets to cover all USDC, this is a non-issue and many people will make some very easy money after this weekend.
If, however, it's assets are not as liquid as claimed or not as 1-1 as claimed, then USDC and Circle will likely collapse Monday morning, quite possibly taking down Coinbase and much more with them.
The belief would be that USDC could repeg while being under collateralized. If there is enough holders of USDC who don't mind that and enough USDC locked up in various smart contacts, wallets with lost keys, or there being people who have missed the news, then Circle may have enough liquidity to continue operating USDC despite not having enough funds to cash out all USDC which technically exist.
I don't think you understand my question or the issue at hand, but I think I have found some answers.
It doesn't matter if it was already $1 right now. The assumption is that everyone purchasing USDC today when it was below $1 is planning on selling it Monday as a quick arbitrage.
Assuming the peg is restored by Monday, Circle is still going to have to have a lot of liquidity to meet the demands of a huge number of people trying to realize that $1. Again, today was the highest volume ever for USDC and presumably many of those transactions are people expecting to cash out Monday.
It seems very possible to me, that Circle will not be able to meet the liquidity demands of keeping the peg and fulfilling their promise of $1 USD for 1 USDC. If they falter at all, and the peg doesn't hold, then anyone holding will immediately panic and attempt to liquidate their position leading to a collapse.
The piece of the puzzle I was missing is that I didn't realize that Circle claims that they have cash reserves (cash and 30-day treasuries) equal to the entire USDC market cap. So anyone who trusts that Circle has the liquidity and cash on hand to payout everything views this as free money.
I would point out that this "arbitrage" existing for more than a brief moment implies there are lots of people who do not believe that Circle can meet these demands and are happily unloading their positions.
> I would point out that this "arbitrage" existing for more than a brief moment implies there are lots of people who do not believe that Circle can meet these demands and are happily unloading their positions
That is their promise, and I've ready previously that they do have some audits that verified it (unlike Tether, which used to make a similar claim).
However, another important question is what actually happens to that dollar - are they actually able to wire you that dollar if you hand them back 1 USDC? For 3.3bn of those dollars, we know they are not currently able to, since those 3.3bn are tied up in SVB, which isn't itself able to wire them to anyone. Hopefully, the rest of the them are more available, but it remains to be seen.
Most people trading USDC aren't creating/redeeming directly with Circle, they're transacting on an exchange where the price is simply determined by supply and demand.
Circle can only redeem during bank hours, so almost everybody involved maintains a buffer of easily accessible dollars to paper over. However in any sort of stressful time these buffers get used up. With no buffer to satisfy the 1USDC=1Dollar, redemptions stop until bank hours and there's no arbitrage opportunity.
For the most part nobody really cares if one of these buffers gets used up because you'll just hold USDC inventory for size. But when the solvency of USDC is in question, nobody wants to hold USDC inventory, and so there's no buying pressure for USDC below $1.
Another factor is that even if you think the USDC fair is .97, not .92, buying below .97 isn't necessarily a good trade. You might be last in line to do a 1-1 redemption, and by that time, the hole isn't $1bn on $40bn but $1bn on $5bn.
I understood your question and the issue perfectly well.
It's widely known that Circle backs USDC 1:1 with cash and cash equivalents. That's the value prop compared to Tether.
It doesn't have to be a huge mystery as to whether Circle can meet Monday liquidity demands. You could look at USDC trading volume since it de-pegged, set the buy/sell ration as you see fit - or even do some onchain analysis - then compare to Circle's cash reserves. This would be a worst case scenario.
Who is buying billions of dollars of USDC for $1 each and.. why are they doing this?
My understanding was that the entire point of a stablecoin was to smooth transactions between other crypto currencies, so most of the buying and selling of USDC was to convert between one coin and "USD" while still remaining in the crypto ecosystem.
The entire reason the peg can remain is because one company, Circle, is guaranteeing to purchase it for $1. If you want to cash out a small amount, sure you can go through a company like Coinbase but if you try to cash out billions then that will just force Coinbase to go to Circle in order to maintain their own liquidity.
You think USDC failing would be bigger than ETH failing? If ETH broke in a way it couldn't recover from I would think that is the second biggest domino (close to tied for first, even).
If you're right, then you can pick up some easy profits by buying USDC at a discount. The amount you're willing to commit is a good indicator of how confident you are in your assessment.
There is good chance that ~30% of deposits above 250k vanished. SVB really screwed up on trades. With equity at zero or close to zero, there is no backstop. Net present value of 2% securities that SVB loaded on is way below par.
Yes, and I have been, by accident! I borrowed USDC on Compound.finance a while ago, using wrapped bitcoin as collateral and the loan remains open. I was intending to just extract some equity from my BTC without selling it, not profit from crashes, but that effectively gives me a short position since I benefit from USDC being easier to buy and thus settle my debt.
Not easily that I know of, the best way would be to use a defi application like compound.finance. You can deposit usdc and take a loan against it in another currency. Then you repay the loan later. However, that is just a normal short. The only real way to lever this is to keep depositing the loan money, and taking out more loans which is expensive in terms of fees.
The peg is held up by the belief that you can always get 1 USD for 1 USDC.
Obviously the market had some doubts about this today and then liquidity issues drove the price down. I'm somewhat surprised that it climbed back up this fast which means that the panic seems to be over (for the moment).
That means it's not really a peg. If you have a peg, it means that the currency issuer is willing to buy their currency for a set amount. Right now, Circle isn't willing to buy USDC for $1 USD - therefore, there is no peg.
Or maybe what we're talking about is a broken peg. Circle was willing to pay $1 USD for a USDC, but they're no longer willing to pay that (at least temporarily). Maybe countries have seen their pegs broken because they couldn't actually defend their peg. They'd promise "we'll give you $1 USD for every 2 PegCurrency" and then someone would come along with a ton of PegCurrency and ask for dollars and they wouldn't have enough dollars to give them. A peg only lasts as long as you have the currency to keep paying at that rate.
We'll have to see on Monday and Tuesday whether they will go back to defending their peg. Unlike many foreign currency pegs, they should have the cash to defend their peg to the last dollar (with the exception of losses incurred due to SVB going under). However, it still might mean a huge loss of confidence in USDC. If they're unable to offer liquidity when people want it, that's potentially a big problem for the product they're offering (but it also might not be: maybe people don't care about 24/7 liquidity and are ok with waiting several days for liquidity).
As far as I can tell, Circle is still willing to buy 1 USDC for 1 USD during business hours, which has always been Circle's policy.
What has changed is that third parties no longer have sufficient faith in that to extend the offer to 24/7. e.g. before Coinbase would give you USD for your USDC on Saturday morning because they were happy enough that they could take the USDC back to Circle and exchange into USD on Monday morning and that they had sufficient USD for the amount of people who were actually going to take them up on that.
Now because of either the worry about SVB contagion or the amount of withdrawals vs coinbase's usd reserves, coinbase is no longer willing to give you an advance on that action, and is making you wait until they can immediately exchange the usdc you give them for usd from circle. Coinbase was never the one under the obligation to give you USD for USDC anyway.
Obviously this is a little more complicated by Coinbase's 50% stake in Circle, but that's only relevant if a bankruptcy courts found misdeeds and a judge ruled Coinbase had to make up the shortfall due to said misdeeds, it's not a reason to be able to enforce Circle's liabilities on Coinbase as a day to day business matter.
> A peg only lasts as long as you have the currency to keep paying at that rate.
This logic applies to all bank deposits as well. SV Bank deposits were pegged to USD at a 1:1 ratio, they just broke the peg. People don't seem to realize USD bank deposits are not the same as USD. With "stable" coins it's more obvious because they have different names.
> "In such a case, Circle, as required by law under stored-value money transmission regulation, will stand behind USDC and cover any shortfall using corporate resources, involving external capital if necessary."
10% really is not enough to compensate for the uncertainty around Circle's commitment, whatever that is. More like be greedy when you have insider information.
USDC -> USD always only ever worked during banking hours. Exchanges offering USDC <-> USD at any time have had to account for this and have enough reserves of USD and USDC themselves.
Would they really need USD reserves? Until the USD is withdrawn, it's just an entry on their internal ledger, and it can't be withdrawn outside business hours, and during business hours they can then exchange the USDC for USD.
It limits risk in the case of a depeg where you are unable to exchange USDC back into USD. You don't want all your company's assets to be exchanged into USDC.
This risk doesn't really depend on having USD reserves though, does it? If the company offers making the USDC <-> USD trades outside of business hours, it's taking the risk. (Of course, if it has the reserves it can be sure to remain solvent if that risk manifests.)
It's just the idea to limit how much USDC you are holding at one time. The more USDC you hold, the more risk there is. A reserve of USDC is just another way of saying that you have a max of USDC you are willing to hold.
I’m not very knowledgeable on this topic, so I have a legit question about all of this:
How is pausing withdrawals not blatant currency manipulation? If I had USDC and lost all faith in it yesterday, shouldn’t I be allowed to cash out today?
Also, if they’ve got many billions in cash, why would losing access to a sliver of it justify shutting down withdrawals?
“Trust us, it’s worth a dollar! Or don’t trust us! It doesn’t matter because you don’t have any choice but to hold USDC until we deem it advantageous to us to allow you to exchange them for real money!”
Imagine that you use a currency made by a specific company, lets say it's called PaypalCoin. Part of the value of the currency is that the company manages it, part of the risk is that a company manages it. So you'll only be able to exchange it for X as long as Paypal say you can exchange it for X. This is part of what PaypalCoin is, so if you use it, you should be aware of this.
This is basically what USDC is, and Circle is the organization that controls it. It is not a decentralized currency, it's a centralized digital currency. If Circle blacklists you and your funds, you won't be able to trade it for USD in the traditional exchanges, you'd only be able to do it P2P. This has happened already, with Tornado Cash, so it has precedent, not something I'm making up.
> USDC is issued and redeemed in accordance with Centre policies including the Centre Blacklisting Policy. Centre reserves the right to block the transfer of USDC to and from an address on chain as permitted under the Centre Blacklisting Policy.
If Circle says you cannot exchange your USDC for USD, then that's the rule. If you don't want that possibility, you wouldn't use USDC in the first place.
That's not true. They still live on a blockchain not controlled by them, so you can still send them around from account to account. You won't be able to get USD from them though via a CEX.
It inherits from Blacklistable which allows a blacklister to blacklist accounts, and almost all functions on the contract have the notBlacklisted modifier which prevents them from being called by blacklisted accounts.
/**
* @title Blacklistable Token
* @dev Allows accounts to be blacklisted by a "blacklister" role
*/
contract Blacklistable is Ownable {
address public blacklister;
mapping(address => bool) internal blacklisted;
event Blacklisted(address indexed _account);
event UnBlacklisted(address indexed _account);
event BlacklisterChanged(address indexed newBlacklister);
/**
* @dev Throws if called by any account other than the blacklister
*/
modifier onlyBlacklister() {
require(
msg.sender == blacklister,
"Blacklistable: caller is not the blacklister"
);
_;
}
/**
* @dev Throws if argument account is blacklisted
* @param _account The address to check
*/
modifier notBlacklisted(address _account) {
require(
!blacklisted[_account],
"Blacklistable: account is blacklisted"
);
_;
}
/**
* @dev Checks if account is blacklisted
* @param _account The address to check
*/
function isBlacklisted(address _account) external view returns (bool) {
return blacklisted[_account];
}
/**
* @dev Adds account to blacklist
* @param _account The address to blacklist
*/
function blacklist(address _account) external onlyBlacklister {
blacklisted[_account] = true;
emit Blacklisted(_account);
}
/**
* @dev Removes account from blacklist
* @param _account The address to remove from the blacklist
*/
function unBlacklist(address _account) external onlyBlacklister {
blacklisted[_account] = false;
emit UnBlacklisted(_account);
}
function updateBlacklister(address _newBlacklister) external onlyOwner {
require(
_newBlacklister != address(0),
"Blacklistable: new blacklister is the zero address"
);
blacklister = _newBlacklister;
emit BlacklisterChanged(blacklister);
}
}
One could ask whether halting trading of a stock is manipulation or not.
Some risks arise mostly out of urgency, and not having countermeasures could have catastrophic results which otherwise would have been avoided by pausing the process.
If Circle were operating as a fractional reserve bank where it borrowed from you by virtue of a positive bank balance, lent me 80% of that, and only kept 20%; pausing honouring withdrawals would likely be illegal.
My view of this is that it's unrealistic to expect a company to store 100% of its assets in immediately avaialable deposits whereas international regulations that apply to banks require ~30 days of liquid supply.
In this case, the legal contract between Circle and its depositors (holders of USDC) is that it'll exchange 1:1.
intrinsically, Circle seems to demonstrate that this contract isn't yet broken, but they can't continue to honour that agreement over a weekend when there's uncertainty of which avenue those funds will come from.
The selling pressure is purely from the secondary market where you're selling me USDC and I'm giving you 0.95 USD.
> Also, if they’ve got many billions in cash, why would losing access to a sliver of it justify shutting down withdrawals?
Because those billions are in T-bills that have to first be sold. And the "cash on hand" is ultimately with banks that are holding a fraction of it.
> “Trust us, it’s worth a dollar! Or don’t trust us! It doesn’t matter because you don’t have any choice but to hold USDC until we deem it advantageous to us to allow you to exchange them for real money!”
Well, "we're enabling redemption on Monday" doesn't equate to the above.
If my pastry shop runs out of already baked goods during the AM peak, I can only ask my customers to wait for me to finish baking more. If there was a pastry regulation, its review would say that I should start baking more pastries in future.
>If my pastry shop runs out of already baked goods during the AM peak
If your pastry shop had 40 billion donuts, and you claim that 10 billion of those donuts are available for sale immediately, do you close your shop when you lose 3.3 billion of them, leaving you with only 6.7 billion donuts that are still sitting there?
Wait, what value is there in the illusion? Some customers may be unable to wait, regardless of a run or not. And if they cannot count on you now then at least they would know to avoid you in the future.
I’m hearing that you can’t even use USDC to exchange for bitcoin/ETH on Coinbase right now. What does converting between types of crypto have to do with banks? Those transactions should in theory have nothing to do with a banking transaction.
It seems like they’re simply forcing people to hold USDC, full stop, and are blaming banks for their decision to do so.
For better or worse, Coinbase does not have a USDC/USD trading pair, or USDC trading pairs with most cryptos (BTC, ETH, etc.). For the most part they have USD trading pairs, which if you have USDC you're typically expected to access by redeeming your USDC for USD and then using the USD trading pairs. But since USDC to USD redemption is halted for now, you effectively cannot trade USDC for most common cryptocurrencies on Coinbase without going through one of their (afaik) three live USDC trading pairs - USDC/EUR, USDC/GBP, and USDT/USDC.
However, other exchanges actually do have USDC markets for most other cryptocurrencies. If you deposit your USDC with them, then you can directly trade order books on USDC/USD, BTC/USDC, and ETH/USDC, which function regardless of the lack of redemption and regardless of the actual market price of USDC.
If Coinbase had lots of USDC trading pairs like other exchanges do, it would avoid the issue you outlined in your comment, but it would also fragment liquidity across two markets that are effectively identical during business-as-usual periods where redemptions function properly.
That's not true, Coinbase has active USDC/USDT, USDC/EUR, and USDC/GBP pairs. I've traded on them overnight. They just disabled the 1-1 conversion with USD.
My bad. Looks like they added those pairs in 2021 and I didn't notice (though it looks like you have to "opt out of the USD and USDC unified experience" in order to access them). I edited my comment accordingly.
What does that have to do with exchanging for crypto?
If I move USDC from one wallet to another, and someone else moves bitcoin from one wallet to another in exchange for that USDC, that transaction happens entirely on the blockchain and at no point involves a bank or a peg.
The only reason to disable that function is to force people to hold USDC.
Beats me, but JP Morgan Chase has paused withdrawals for me too. They say "You have reached your daily $5000 ATM withdrawal limit" and "Bank hours are 9 AM to 5 PM Monday through Friday".
"Trust us, you can withdraw your money! Or don't trust us! It doesn't matter because you have no choice but to look at your bank balance until we deem it advantageous to allow you to withdraw to real money!"
This is exactly why I never hold USDC. Many stablecoins are well managed. USDC has a history of slimey behavior that has always made them appear much riskier to me than alternatives. For instance I don’t trust USDT management either, but I would trust them more than USDC management.
In my understanding all accounts up to insured limit will get paid Monday. everything else is going to have to file a claim which could take a long time to resolve.
Seems like about 8% their assets will be locked up / at risk. For a company that promises to have 100% of assets backed up / readily accessible, I wouldn’t be surprised if this triggers a run.
> redemption is constrained by the working hours of the U.S. banking system
Why do they keep saying this? This should’ve always been the case, regardless of SVB’s collapse. Seems more like a non sequitur to cover for an actual issue.
Typically, Coinbase has been able to absorb liquidity on weekends to give consumers the illusion that USDC is redeemable outside of banking hours, but the SVB crash caused their weekend reserves to run out.
If SVB didn't crash, there wouldn't have been a huge spike in USDC redemptions, and Coinbase would have been able to service redemptions using their weekend reserves like they always have.
I'm pretty sure that's against Apple's App Store T&C and the application would be banned by flooding fake 5 star reviews. It would also be pretty easy to detect.
Was the app ever banned or everything proceeded as normal? Is Apple in Circle's pocket somehow?
Apple is known to loosen its rules around big apps. Facebook and other big players have gotten away with many privacy violations that any small app would be blacklisted for, simply because Apple knows banning them would damage their brand more than making special rules for big players does.
If Apple were to ban Coinbase, many people would probably blame Apple for restricting access to their cryptocurrency rather than thank them for standing up for fair app store reviews. Instead, they've probably just asked them nicely to stop doing whatever would be ban-worthy otherwise, with a ban (and a press statement) ready in case they don't cooperate.
It wouldn't make business sense to ban a popular app for something as silly as fake reviews, especially with the amount of customer money involved.
There are lots of financial incentives for people to review bomb the app in both directions. Is there any evidence that it wasn't third parties manipulating the reviews both times in both directions?
I'm imagining a second thread on a different forum, nearly identical to the thread you linked and just as ideological, with a title like "After Circle was unfairly review-bombed with 1 Star reviews by haters, our community has added 55+ Five Star reviews in 3 days."
In such a case, Circle, as required by law under stored-value money transmission regulation, will stand behind USDC and cover any shortfall using corporate resources, involving external capital if necessary.
I don't get it..the money is gone. Is there something I am missing here? You cannot just magically fix a shortfall.
After the fall of Terra, it's clear that stablecoins can only go down in value. There's also no FDIC to step in to take over the failing stablecoin. You're trusting USDC and by extension BlackRock to do the right thing here.
...it's clear that stablecoins can only go down in value
That's just a truism, regardless of the stablecoin or the state that it's in. No-one should ever expect a $1 stablecoin to trade significantly higher than $1, since the creators of the coin can easily arb the difference to pocket some free money.
Actually, certain alogrithmic "stablecoins" are designed to oscillate around fiat so it is possible to be higher than $1. An example is AMPL: https://coinmarketcap.com/currencies/ampleforth/. Of course, its value oscillates so much that "stable" might be a misnomer, but that is its goal.
Terra was no stablecoin and it has been constantly pointed out that it wasn't.
USDC is backed 1 USDC for 1 USD. What you're actually seeing here is that the traditional finance system has lead to a crash in crypto. That's almost refreshing. Usually crypto fucks up by itself (see FTX and Terra for the most recent ones).
Arguably, the FTX debacle is in the same bucket, as it was caused by people having their money on an exchange that essentially functioned like a fractional reserve bank.
I assume you're deriving the 23¢ from the 23% they have banked, but I would like to note that of that 23%, roughly a third (3.3bn of 9.7bn) was with SVB. The rest was with other banks not facing the same issue.
Over the last 24 hours USDC had a low of $0.85 at 3 AM EST to a high of $0.98 at 3 PM EST.
I wonder how many startups would take a 2% - 15% cut to withdraw their money for short term expenses.
Is there a secondary market for deposits at banks? Like a Silicon Valley Bank Stable Coin (Probably would have been called a Silicon Valley Dollar before 1913)
Terra was collateralized by crypto. USDT is collateralized by… something, maybe. Given that USDT always regained its peg regardless, the depeg of USDC seems like an overreaction.
That is not the point. USDT repegged from far worse news. It is a hot potato, but the market used to price that risk at almost zero for 99.9% of the time.
Yes, there are even people on HN that have reported successful redemption of tether for USD. You can ask people directly. It's not like this is a rare thing that never happens. If people weren't able to do so you would expect people to actually make claims aginst it.
100% of $0. Tether is entirely a scam by intentional criminals and not a single dollar is in a vault.
They say they're 1:1 backed but have committed obvious financial fraud around this. There's no benefit to them to be even 95% backed, it's 100% or jail, so why would they bother?
This is how they maintain the peg perfectly - it's all fake. They "redeem" their friend's Tether with their personal funds but they won't even try if there's a run.
Terra is not even in theory backed by real dollars, it had a known failure case, which did in fact occur. Again, the market priced that risk at virtually zero until the failure case was tangible.
They deposited 3B with this bank for the specific purpose of it being a safe place.
Their 10B in cash was spread over 6 banks to diversify the bank risk.
They have plenty of higher risk investments in their treasury, but these ones were the safe ones intentionally put into banks with insurance. If the government protection wasn't there the investment would’t have been there in the first place
> 10B in cash was spread over 6 banks to diversify the bank risk
This is nonsense Treasury management. Fidelity spreads checking account deposits across twenty-six banks to reach $3mm FDIC coverage [1]. Beyond sweep, Circle’s assets should be in short-term, on-the-run Treasuries, repos and commercial paper.
These funds appear to be specifically for short term redemptions, if they turn over 3B in redemption's every 7 days then how are they meant to keep less then that in the banks
Hence the government protection should be partial. Mostly just making sure SVB's assets are used to lessen the impact of the closure. If that results in Circle getting pennies on the dollar then so be it.
> Mostly just making sure SVB's assets are used to lessen the impact of the closure
That's standard practice.
Money from liquidation goes first to insured deposits, then what remains goes to uninsured deposits, then to pay other debts, and finally if anything is left, to shareholders.
Looks like here it will only cover insured deposits and substantial fraction of uninsured deposits.
Yeah, some think that substantial fraction will be 100%. We'll see!
I don't want to give Circle one cent of bailout money, though. And their post is saying that they are owed a full bailout because they participated in the bank run on the day of the bank run, and also begging for a full bailout. Pretty pathetic.
>And their post is saying that they are owed a full bailout because they participated in the bank run on the day of the bank run, and also begging for a full bailout.
> $3.3bn of USDC’s cash reserves remain with SVB. As of Thursday, we had initiated transfers of these funds to other banking partners. Though these transfers had not yet been settled as of close of business Friday, we remain confident in the FDIC’s management of the SVB situation and stand ready to receive these funds.
The part where they said that because they participated in the bank run that they should keep it all, presumably even if others who didn't participate in the bank run lose some of theirs:
> We have reason to believe that under applicable FDIC policy, transfers initiated prior to a bank entering receivership would have otherwise been processed normally. In other words, the FDIC should allow transactions to settle in the ordinary course through the end of a bank’s standard daily processing cycle until the FDIC takes control of the failed institution.
"transfers initiated prior to a bank entering receivership" is doing a lot of work here.
Something that custodies money should be able to give it all back instantly. If it is vulnerable to "fear uncertainy and doubt" as a self fulfilling prophecy of not being able to pay out everything instantly, then it should be dismantled.
I think its interesting that properly collateralized and well managed services don't make the news, but it is very common in the crypto space for 100% withdrawals to occur seamlessly. Far more common than the implosions. Whereas seemingly all banks are relying on withdrawals en masse simply not happening.
Did Circle and USDC trigger the sudden liquidity gap in SVP that triggered the fire sale of 21B at a loss? Is the crypto panic triggering the bank runs?
“Last week, we took action to reduce bank risk and deposited $5.4bn with BNY Mellon, one of the largest and most stable financial institutions in the world, known for the strength of their balance sheet and as a custodian.
$3.3bn of USDC’s cash reserves remain with SVB. As of Thursday, we had initiated transfers of these funds to other banking partners. ”