Just yesterday, Silicon Valley Bank (SVB), a top-20 bank in the United States, declared bankruptcy. It was the second largest bank failure in U.S. history. The bank was unable to raise new funds due to a run on deposits. The Federal Deposit Insurance Corporation has now taken over the bank's deposits.
The next day, the SVB bankruptcy case immediately affected the encryption market.
Stable currency issuer Circle posted on social media today that Silicon Valley Bank is one of Circle's six bank partners and is responsible for managing approximately 25% of USDC's cash reserves with other banks. Circle is currently awaiting the impact of the FDIC’s takeover of Silicon Valley Bank on its depositors, but Circle and USDC continue to operate normally.
According to the latest data released by Circle’s official website, the total market value of USDC currently in circulation is approximately US$43.4 billion, and the total capital reserves are US$43.5 billion, of which cash reserves are US$11.1 billion, accounting for approximately 25%, and the remaining US$33.4 billion in reserves are Short-term Treasury bill portfolio. USD Stablecoin (USDC) account reserves of approximately $3.3 billion out of approximately $4 billion remain in the SVB. Like other customers served by SVB Bank, Circle will follow guidance provided by state and federal regulators.
Since part of the funds were reserved on SVB, a run on USDC was triggered in an instant. At the same time, centralized trading platforms such as Binance and Coinbase have announced the closure of some USDC exchange services.
At this time, USDC has dragged its anchor to around US$0.893. In the past 24 hours, Coinbase alone has sent 4.725 billion USDC to Circle for destruction.
So, will USDC enter a death spiral?
A death spiral refers to a situation where when the pegged value of a stablecoin decreases, holders sell the stablecoin to avoid losses, resulting in increased supply and reduced demand for the stablecoin, further pushing its price down. This could trigger panic and a crisis of trust, ultimately leading to the collapse of stablecoins.
Whether USDC will enter a death spiral depends on Circle’s ability to continue to deliver on its 1:1 redemption promise and maintain the transparency and integrity of its reserves. Currently, USDC has experienced a slight deviation from its USD peg due to the collapse of Silicon Valley Bank, which affected some of Circle’s reserves. Centralized trading platforms such as Binance and Coinbase have also suspended exchange services between USDC and US dollars. These are all negative factors that may exacerbate market concerns about USDC.
If Circle sells Treasury bonds to cope with concerns about depleting its cash reserves, Circle will follow the same path as SVB and face serious losses.
More than two million US dollars turned into 0.05, and the robot made more than 10 million backhand?
It was already tragic enough for usdc to be unanchored, but what was even worse was that someone exchanged only 0.05usdt for a token worth more than two million US dollars. How is this going?
According to reports, someone tried to exchange 3CRV for USDT through the Curve platform, but his transaction was preempted by some MEV (Maximum Extractable Value) robots on the Ethereum network. This resulted in a severe imbalance in the 3CRV pool, and traders were left with only $0.05 USDT.
The specific situation is as follows:
Someone wanted to exchange 3CRV for USDT through the KyberSwap platform, but he chose Uniswap instead of Curve as the transaction path.
His transaction was discovered in advance by some MEV robots on the Ethereum network and executed first with a higher handling fee.
These robots bought most of the USDC in the 3CRV pool, leaving only a small amount of USDC in the pool.
When the original trader's transaction was executed, he could only exchange 3CRV for a small amount of USDC, and then exchange USDC for $0.05 USDT.
MEV Robot exchanged a small amount of USDC for a large amount of 3CRV and made a huge profit.
It is in this 3CRV-USDC exchange pool that robots bought most of the USDC in advance. According to the AMM algorithm, x*y=constant k, k remains unchanged, and as one value becomes smaller, the other value will become larger. Therefore, this user's 3CRV changed to USDC and became very small.
What’s even more frightening is that the funds of many crypto investment institutions are also stored in Silicon Valley Bank.
According to online disclosures, A16z has approximately 4.95 billion funds in Silicon Valley Bank, BlockFi has approximately 2.27 billion funds in Silicon Valley Bank, and Paradigm has approximately 1.72 billion funds in Silicon Valley Bank.
No matter what the future holds, it is foreseeable that the collapse of Silicon Valley Bank will have a great impact on the crypto market.
