USDC depeg, SVB crash hurt crypto whales

In reaction to the unusual depegging event of the USD Coin stablecoin triggered by the failure of its counterparty, Silicon Valley Bank (SVB), crypto whales have reported significant losses and seem to have initiated a series of capital flight to preserve their holdings.

Du Jun, co-founder of cryptocurrency exchange Huobi Global, wrote:

“[I] dodged, LUNA, dodged 3AC, even dodged FTX [and their collapse], but I couldn’t avoid Silvergate, nor SVB and USDC. Asked a few crypto veterans; losses amounted to >$1 billion in stock and deposits, myself included. I’m very upset, and it’s time to cut down on my budget.”

On the same day, blockchain personality and Tron founder Justin Sun reportedly withdrew a total of 82 million USDC from the decentralized finance (DeFi) protocol of Aave V2 via a series of transactions and swapped it for stablecoin DAI.

82 million USDC are worth $75.26 million at the time of publishing.

About DAI, the stablecoin’s issuer, Maker Dao, submitted an emergency protocol on March 11 that, among other things, asked for limits on minting DAI using USDC to avoid panic selling.

Maker DAO is one of the biggest holders of the stablecoin, with around $2.8 billion USDC ($3.1 billion USDC) in reserves collateralizing DAI, which consequently depegged.

Hence, crypto projects using DAI in their tokenomics also experienced losses as a result of a chain reaction.

Due to the events, Curve Finance, a popular DeFi protocol for trading stablecoins, announced a record-breaking daily trading volume of $5.67 billion.

In perspective, the protocol’s entire locked value is just $3.77 billion. A few other platforms were unable of handling the overwhelming amount of USDC transaction requests.

In one instance, a user paid almost 2.08 million USDC for a swap that resulted in permanent loss, but got just 0.05 USDT in return.

The decentralized exchange responsible for enabling the trade, KyberSwap, said in an update that it is “assisting with cash recovery” and is in contact with the user discussing the situation.

According to Loki Zeng, a renowned DeFi analyst at New Huo Technology, Circle’s reserves consist of $32.4 billion in Treasury securities, $3.3 billion in deposits at SVB, and $7.8 billion in deposits at other financial institutions. Zeng wrote:

“For USDC to go bust, it needs to satisfy three conditions; there is an abundance of deposits on SVB, and three other at-risk banks, the recovery rate for such deposits remains low, and USDC cannot mitigate such losses.”

According to Zeng, “there is a low possibility of a problem, and if there is a problem, it will not be as severe as FTX.”

Nonetheless, the DeFi researcher stated that his estimate for the USDC’s net worth is “$0.885 in severe conditions and $0.985 under regular conditions.”

In the preceding twenty-four hours, the price of USDC has decreased 8.30% to $0.9163 per unit.

Alex Svanevik, chief executive officer of the blockchain analytics startup Nansen, said that Circle and USDC “may succeed.”

Nevertheless, Svanevik also cautioned that Circle required “first-rate execution over the next few days,” including “impeccable redemptions” and no “bailout PR” calls.

In a second tweet, Svanevik said that a user swapped 25 million USDC from their PulseX sacrificial wallet for DAI.