USDC Depeg: What Happened? Safe or Can it Happen Again?

Where were you when usdc depict if You're watching this video chances are You are anxiously eyeing usdc's price as It plummeted to 88 cents asking yourself If the safest stable coin in Cryptocurrency was about to go kaput Fortunately usdc regained its dollar Peg Unfortunately the ordeal has the crypto Industry wondering which if any stable Coins are safe and it has increased the Scrutiny of stablecoin issuers in the USA Today I'm going to give you a bit of Background about Circle explain exactly Why it's usdc stablecoin lost its Peg Reveal which stable coins are safe to Hold and tell you what it all means for The crypto Market Quick bit of background to bring you up To speed Circle internet Financial or Just plain Circle was founded in 2013. Back then its focus was Bitcoin Specifically BTC payments like other Crypto companies at the time Circle Believed that the entire crypto Ecosystem would be built on bitcoin this Started to change when ethereum launched In 2015. Many institutions started pivoting their Crypto payment aspirations from Bitcoin To ethereum after the New York agreement Failed in 2017. For context the New York agreement was When institutions tried and failed to Take over Bitcoin in 2018 Circle

Released the usdc stablecoin on the Ethereum blockchain Given that usdc launched in the middle Of a crypto bear Market it had a hard Time getting off the ground Two circles credit it doubled down on Its stablecoin Dreams by selling off its Other assets and focusing solely on usdc In 2020 usdc's market cap finally Started to grow which makes sense given That this is when the crypto Bull Run Began This growth was facilitated by circles Partnership with coinbase via the center Consortium which governs usdc and aims To create standards for crypto stable Coins in general note if you want the Full Deep dive into Circle then I Covered it in a video I did a few months Ago link is in the description Now what's interesting is that usdc's Primary use cases are defy and as a Hedge against something going wrong with Other stable coins Usdc's prevalence in defy appears to be Due to its crypto connections whereas Its popularity as a hedge comes from the Fact that circle is regulated and very Transparent This is in stark contrast to tether Which is relatively unregulated and not Nearly as transparent Now the primary use case for tether's Usdt stablecoin is trading is specially

Leveraged trading when you see tether Printing billions of usdt chances are It's because there is lots of demand for Leveraged Trading One thing that usdc and usdt have in Common however is that they are mostly Backed by U.S government debt this is Because U.S government debt is Considered to be the safest asset Someone can hold It's also because large amounts of U.S Government debt can be easily sold to Meet stablecoin redemptions In other words when you buy a stablecoin Like usdc or usdt you are ultimately Subsidizing the US government spending Which is crazy to consider what's even Crazier is that Circle and tether have Both been making billions of dollars in Passive income from holding this U.S Government debt now obviously neither Circle nor tether keeps one hundred Percent of their stablecoin reserves in U.S government debt they always keep Some cash on hand to ensure that they Can always process stablecoin Redemptions it's not clear how much cash Tether holds at any given time because Well it's not very transparent Conversely Circle provides a real-time Breakdown of the assets backing usdc on Its website and publishes monthly Attestations which provide specific Details for these assets these details

Include the actual serial numbers of US Government debt Circle holds and where It keeps its cash Reserves this Transparency is why usdc is considered To be the safest stable coin in crypto Circle also has a close partnership with BlackRock now considering that BlackRock Is the world's largest asset manager and Basically owns everything it's assumed That circles association with it makes Usdc safe from regulatory scrutiny you Can learn more about circle's Connections to Blackrock and the world Economic Forum using the link in the Description I digress Now another reason why usdc was Considered to be the safest stable coin In crypto is because it had a solid Track record of keeping its one dollar Peg put differently Circle had a solid Track record of minting and burning usdc In response to changes in demand which Is again why these mints and burns Happen One of the reasons why Circle did this So well was because it had access to Silvergate bank's silvergate exchange Network or sen for short and signature Bank's Signet Network the sen and Signet Made it possible for crypto companies to Instantly send cash and crypto between Themselves 24 7 365. More importantly the sen and Signet made It possible for Circle to process stable

Coin redemptions 24 7. this is extremely Important because the crypto Market also Trades 24 7. if the demand for usdc Suddenly dropped outside of regular Banking hours usdc could lose its Peg Without these networks if you watched Our video about silvergate's collapse You'll know that it shut down the sen in Early March and the bank went under one Week later Circle co-founder and CEO Jeremia Lair confirmed in a recent Interview that this is when the poop Started to hit the turbine for the Stablecoin issuer now to my Understanding Circle joined other crypto Companies in jumping ship to Signature Bank after the sen was shut down for Reference this happened on the 3rd of March when silvergate went under on the 8th of March Circle made the decision to Move its assets out of signature fearing It would suffer the same Fate on the 9th Of March Circle moved its assets from Signature to bny Mellon and started Moving its assets out of other Banks Including Silicon Valley Bank or svb by That point svb was facing a bank run With all of its clients rushing to cash Out Circle got the thin end of the wedge Its bank transfer didn't go through now You'll recall that Circle publishes Monthly attestations of its usdc Reserves in the January attestation Circle revealed that it held some of its

Cash reserves with svb when svb went Under on the 10th of March the crypto Community started speculating how much Of usdc's reserves were stuck there now Rather than run away from the fact Circle addressed it head-on that same Day the stablecoin issuer confirmed on Twitter that 3.3 billion dollars of its Cash reserves were stuck in svb this Accounted for around a third of circles Cash reserves and eight percent of the Assets back in usdc leaving it partially Unbacked not surprisingly usdc Immediately lost its Peg In theory usdc should have quickly Regained its Peg because Circle still Had access to Signet in practice However The fact that Circle had recently moved All of its assets out of Signature Bank Meant it couldn't process the flood of Usdc redemption requests This caused usdc holders to flee to Coinbase believing they could redeem Their usdc for US Dollars through Another Center Consortium member in a Truly terrifying move coinbase announced That it would be temporarily suspending Usdc to USD conversions presumably to Protect its own liquidity Come the 11th of March usdc had Completely lost its Peg D5 protocols Started passing emergency proposals to Lessen their exposure to the stablecoin Namely maker Dao whose die stablecoin is

Backed primarily by usdc oddly enough Binance made the abrupt decision to Re-list usdc more about that later on That note you can get a juicy trading Fee discount on binance and other top Crypto exchanges using the deals page in The description moving on Now in the middle of all this chaos Circle stepped up to the plate and Announced that it would use its own Quote corporate resources to plug the 3.3 billion hole in usd's balance sheet If the company was unable to recover its Cash from svb This assurance caused usdc to pump but Not all the way back to its Peg on Sunday the 12th of March U.S Regulators Announced that all svb depositors would Be getting bailed out this meant that Circle would have access to its missing Cash reserves first thing on Monday the 13th of March But just a few hours later U.S Regulators announced that they had shut Down Signature Bank for no real reason This meant that Circle simultaneously Lost access to the network that it Needed to process the billions of Dollars of backlogged usdc redemptions This left the stablecoin issuer Scrambling to find a bank that could Provide the same 24 7 stablecoin minting And burning Services before the Redemptions came luckily Circle managed

To secure a last-minute partnership with Cross Riverbank and moved essentially All of its assets to bny Mellon in the Days that followed around 4 billion Dollars of usdc was redeemed for USD Usdc finally regained its dollar Peg Which had been stuck at 99 Cents since The Monday Subsequent on-chain analysis revealed That the smartest money used the d-peg To pay back defy debts at a discount and Even doubled down on usdc and Derivatives such as die this included Ethereum Creator Vitale buteran who once Said that usdc would have the power to Decide future ethereum Forks the biggest Beneficiary of them all though was Tether whose usdt stablecoin seemed to Have absorbed most of the outflows from Usdc Usdt's market cap increased by almost 6 Billion likely due to a combination of Usdc conversions and a spike in demand For leveraged trading due to the bank Bailout driven rally what's fascinating Is that most of these usdc conversions Seem to be coming from or happening Through binance as I mentioned a few Moments ago binance re-listed usdc after It lost its Peg for those unfamiliar Binance delisted usdc and other Competitors to its busd stablecoin last September as such binance's re-listing Of usdc came as a surprise to many but

It starts to make sense when you look at What happened on chain After binance relisted usdc it became The single largest holder of usdc on Ethereum since that time however Binance's usdc Holdings have been Falling fast not only that but the Decline in binance is usdc Holdings on Ethereum correlates perfectly to the Usdc redemptions happening at Circle This was pointed out to me by our head Of research who also pointed out that Binance's usdc Holdings are falling to a Level that could put the exchange at Risk of a usdc run now to be clear Binance would be fine if there was a run On its usdc Holdings Crypto entities affiliated with circle Tried to squeeze binance last December By withdrawing billions in usdc after Its delisting and binance honored all Usdc withdrawals even so it begs the Question of why binance might be in the Process of selling all its usdc and Where that usdc is going the answer Seems to be the regulatory scrutiny that Stablecoin issuers are facing in the United States this includes busd issuer Paxos who will likely be sued by the SEC Soon And as to where all that usdc is going Most of it is probably being converted To usdt by Traders concerned about U.S Crypto regulations it's also possible

That some of the usdc belonging to Binance is being converted into BTC eth BNB and other cryptos this is because Binance recently announced it would be Converting 1 billion busd to BTC eth BNB And other cryptos if this is the case it Could be contributing to the current Crypto rally Speculation aside the billions of Dollars of usdc redemptions we've seen Despite the stablecoin regaining its Peg Underscores the ongoing concerns about Stablecoin issuers based in the United States Usdc's debegging could increase this Regulatory scrutiny and not just because Some people lost money If you watched our recent video about Signatures collapse you'll know the bank Was likely taken down by U.S Regulators Because Signet is a direct competitor to The fed's upcoming fed now payment System the same is likely true of Silvergate which was planning on turning The sen into a payment system Cross Riverbanks real-time payment System appears to be identical to the Sen and Signet this could put the bank In the crosshairs of anti-crypto Regulators and even if cross Riverbank Escapes anti-crypto scrutiny it may not Escape the scrutiny that's Arisen Because of the banking crisis According to Wikipedia cross Riverbank

Had around 10 billion dollars in Assets In 2020. although this figure has Certainly risen since then there's no Doubt that the bank is still very small This is significant because small and Medium-sized banks are seeing outflows To Big Banks after the collapse of svb What's strange is that circles only Mention of cross Riverbank seems to be In a tweet by CEO jeremia Lair this has Left the crypto Community looking for More details about the bank coindesk Recently published an in-depth article About it but also seemed to have issues Finding info research by data Phenovation suggests that cross Riverbank doesn't have the best track Record when it comes to managing its Assets well I reckon the same could be Said for most banks but it nonetheless Increases the risk that cross river Could face issues if its customers rush To withdraw their deposits These concerns are apparently Justified Because Bloomberg asked Jeremy whether Circle had done due diligence on Cross Riverbank in a recent interview Jeremy avoided the question and went on To insist that usdc's debegging was Fundamentally due to issues in the Banking sector not the crypto industry Another concern that's come up in Interviews with Jeremy Post depot is the Sec's aforementioned plans to sue paxos

The concern is that the sec's reasoning In its suit against paxos could also be Applied to Circle Now Jeremy acknowledged that some stable Coins could be Securities but said usdc Isn't this is because the fed and other Anti-crypto Regulators have been Explicitly targeting potential Competitors to Fed now and the fed's Upcoming digital dollar circles emphasis On usdc being used for payments may Protect it from the SEC but it does put It directly in the firing line of the FED which is worse never mind that Jeremy admitted that usdc's end game is To become the Central Bank digital Currency of the United States Circle seems to be hyper aware of this Potential fed fracker because the first Thing Jeremy and other Circle Executives Did after repairing usdc's Peg was to Fly to the UK to meet with Regulators There just a few days ago Circle Announced that it had chosen France to Host its European headquarters citing Pro-crypto regulations to be fair this Could simply be because circle is Planning on launching a GBP stablecoin And is working on growing its Euro Stable coin However the fact that other U.S crypto companies like coinbase are Also trying to set up shop overseas Suggests that Circle knows its U.S Operations are at risk

So this brings me to the two big Questions which stablecoin is the safest To hold at this point in time and what Does the scrutiny of stablecoin issuers In the United States mean for the crypto Market well I'll start by saying that None of this is financial advice and That I honestly don't know which Stablecoin is the safest but here are Some things we do know about the primary Stable coins When it comes to usdc we know that it is 100 backed and always will be even if Regulators crack down on Circle I doubt That they will leave stable coin holders Holding the bag If the regulatory action against paxos Is anything to go by usdc redemptions Will still be possible Looking at usdt meanwhile tether is not Based in the US this means that it Should be safe from regulatory scrutiny Assuming it's not still keeping some of Its reserves on Wall Street Ironically enough tether's lack of Transparency regarding custodians should Protect usdt from a usdc type d-peg Regarding what affects the scrutiny of Stablecoin issuers in the United States Could have on the crypto Market a Full-scale Crackdown actually wouldn't Be that damaging remember that usdc is Used primarily for defy and as a hedge Against offshore stable coins the same

Is true for other U.S stable coins this Means that the damage would be mostly Contained to defy which would be bad News for D5 protocols like maker Dao and Smart contract cryptocurrencies like Ethereum Some would argue that the damage a U.S Stablecoin Crackdown would do to defy Gives Regulators more incentive to Follow through the Silver Lining to this Is that the crypto ecosystem itself Would be safe particularly if foreign Countries pass pro-crypto regulations This will allow the crypto industry to Regroup grow even more and hopefully Re-enter the United States once a more Pro-crypto Administration has been Elected in 2024 assuming that happens of Course This seems to be the strategy that Circle coinbase and many other U.S Crypto companies are taking the fact That they've put this plan into Motion In the absence of a direct Crackdown in The US suggests that that is still Coming now that payment networks like The sen and Signet are down stable coins Are probably next so consider keeping Some cash reserves to buy the dip just In case keep them in whichever stable Coins you feel comfortable with and make Sure they're being stored on your Personal crypto wallet you can get huge Discounts on Hardware wallets using my

Deals page which will be down in the Description and with that folks thank You all so much for watching and I'll See you next time this is guy over and Out [Music]


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