Crypto whales suffer huge losses due to USDC depeg, SVB collapse

In response to the extraordinary depegging event for the USD Coin (USDC) stablecoin caused by the collapse of its counterpart Silicon Valley Bank (SVB), crypto whales have reported severe losses and appear to have initiated a series of capital flights to protect assets. Du Jun, co-founder of cryptocurrency exchange Huobi Global, submitted:

“(I) avoided, LUNA, avoided 3AC, even avoided FTX (and their collapse), but I couldn’t avoid Silvergate, nor SVB and USDC. Asked a couple of crypto veterans; losses amounted to >$1B in stocks and deposits, myself included. I’m very upset and it’s time to cut my budget.”

On the same day, blockchain personality and Tron founder Justin Sun reportedly withdrew 82 million USDC from the decentralized finance (DeFi) protocol, Aave v2, over a series of transactions and exchanged from Dai (DAI). At the time of publication, 82 million USDC is worth $75.26 million.

Speaking of DAI, MakerDAO, the stablecoin’s issuer, filed an emergency protocol on March 11 that, among many items, called for restrictions on minting DAI using USDC to prevent panic selling. MakerDAO is one of the largest holders of the stablecoin, with over USDC 3.1 billion ($2.85 billion) in reserves backing DAI, which has also declined as a result. Subsequently, crypto projects also incorporate DAI into their tokenomics little loss due to a chain reaction.

Curve Finance, a popular DeFi protocol for trading stablecoins, reported an all-time record daily trading volume of $5.67 billion due to the events. In context, the protocol only has a total value locked at $3.77 billion. A few other platforms simply could not handle the large volume of trading requests associated with USDC. In one incident, a user received only 0.05 Tether (USDT) after paying over 2.08 million USDC in a swap that resulted in a permanent loss. In an update, KyberSwap, the decentralized exchange responsible for facilitating the swap, said it was “fund recovery assistance” and is in contact with the user regarding the issue.

According to Loki Zeng, a prominent DeFi analyst at New Huo Technology, Circle’s reserves are spread across $32.4 billion in treasury instruments, $3.3 billion in deposits with SVB, and $7.8 billion in deposits with other financial institutions. Zen wrote:

“For the USDC to go bust, it must meet three conditions; there is an abundance of deposits at SVB and three other risky banks, the recovery rate of such deposits remains low, and the USDC cannot mitigate such losses.”

Zeng added that his personal opinion is that “there is a low probability of a problem, and even if there is a problem, it will not be as serious as FTX.” Nevertheless, the DeFi analyst added that his estimate for the net worth of USDC is “$0.885 in extreme situations and $0.985 in normal situations.” At the time of publication, the price of USDC has fallen 8.30% in the past 24 hours to $0.9163.

Alex Svanevik, CEO of blockchain analytics firm Nansen, too commented that Circle and USDC “can handle it.” However, Svanevik also warned that Circle requires “top-notch execution over the next few days,” such as “error-free redemptions,” and no calls for “rescue advertising.” In another tweet, Svanevik also revealed that a user moved 25 million USDC from their PulseX sacrifice wallet and exchanged it for DAI.

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