Last Updated on March 11, 2023 by Bitfinsider
The fallout from Silicon Valley Bank’s failure expanded overnight to the USDC stablecoin, which lost its peg to the US dollar and fell as low as $0.88.
Following Circle’s revelation that it holds $3.3 billion in USDC reserves at the failed Silicon Valley Bank, investors rushed to sell their USDC holdings. They exchanged them for alternative stablecoins such as Tether’s USDT or chose to exit the crypto market completely in favor of fiat, resulting in USDC’s biggest depeg since its inception in 2018 and a market cap of less than $40 billion — down more than 15% in the last 24 hours.
A significant amount of USDC has been consumed. Nansen observed that $2.34 billion had been burned in the previous 24 hours, while $366 million had been minted. This indicates that large traders are exchanging stablecoins for dollars through Circle.
If USDC falls much further, the ripple effects across the crypto market could be severe. If it dropped below $0.865, for example, $50 million in USDC collateral would be liquidated on DeFi lending platforms such as Aave and Compound, according to DeFiLlama (unless further collateral is provided).
The effect was felt not only on centralized exchanges, but also on Ethereum transaction fees, which increased tenfold as USDC holders fled.
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