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Discussion: Will USDC Crashed? Who Will be the White Knight
On March 11, Circle disclosed that 3.3 billion USDC reserves were locked in Silicon Valley Bank, which declared bankruptcy. Coinbase urgently closed the fiat exchange channel and promised to open it when the banks opened on Monday. Whether USDC will be crashed or not, there are currently many discussions.
Cobo Founder: Two Key Timing
There are two key timing. The first is that there are 3 billion USDC collaterals in the MKR chain to mint DAI. Once the liquidation is triggered, the losses will be heavy. The second is that the bank will open the door to withdraw cash on Monday, and we need to pay attention to the run situation. Binance currently holds 3 billion+ USDC, and needs to pay attention to the exchanges and market makers.
ps: MakerDAO launched an emergency proposal about USDC to limit Maker’s exposure to potentially impaired stablecoins and other risky collaterals, while maintaining enough liquidity to prevent DAI from trading significantly above $1 if conditions change, and ensuring there is adequate market liquidity to process potential liquidations of crypto collateralized vaults.
NewHuo Researcher 0xLoki: The probability of problems with Circle is small
The reserve assets of USDC can be divided into three parts:
1. a $32.4 billion portfolio of US Treasury bonds
2. $3.3 billion held in SVB, and
3. $7.8 billion held in banks outside of SVB.
As of January this year, there were a total of 16 securities, with investment periods not exceeding 3 months and sufficient liquidity. Assuming a pessimistic recovery rate of 80%, Circle’s total loss would be approximately $2 billion, calculated as 33*40% + 33*20%. A more reasonable estimate is that Circle would lose approximately $700 million, calculated as 33*20% + 10% of one of the three banks. In the most extreme case, if SVB’s $3.3 billion and 50% of the remaining $5 billion in the other three banks cannot be recovered, the net value of USDC would be respectively 0.985 (normal situation), 0.954 (pessimistic situation), and 0.885 (extreme situation). Circle has no subjective fault or malicious behavior in this matter and is still a high-quality enterprise. Even if losses occur and Circle cannot resolve them, it is highly probable that other institutions will be willing to acquire or invest to solve the problem.
There are three conditions that need to be met for USDC to truly collapse:
1. There must be enough funds in SVB and the three risky banks
2. The debt recovery rate of these banks must be low enough, and
3. USDC itself cannot bear the losses or cannot find funding to solve the problem. Therefore, in my personal opinion, the probability of problems occurring is not high, and even if they do occur, it is unlikely to be as serious as FTX.
Hedge Fund North Rock Digital Founder Hal Press: $0.77 Absolute Floor
Circle holds 77% of their reserves in 1–4 month T-Bills. These T-Bills are held at BNY Mellon and managed by Blackrock. This provides an absolute floor on USDC of 0.77. The remaining 23% is all held in cash at various entities. Approximately 1/3 of that cash was held at SVB. SVB is going to liquidate all assets over the next couple months and most estimate will return no less than 10–20% of total asset value. It’s extremely hard to envision a scenario where you lose money buying USDC below that and most likely I think USDC ends up fully repegging. I am buying more at 88c as it is simply the best RR I have seen in a long time.
Muse Labs Jiang Jinze: Need to bet on a strategy
Currently it looks like USDC is salvageable. After all, there is more than 30 billion short-term debt financing in hand (without floating losses or even the net value of the bond has soared higher than 1 recently). Just selling some casually is enough liquidity, but they have to bet on a strategy: whether to suspend redemption all the time, use selling financial management The money for the secondary repurchase. It is still open for redemption, but it can only be exchanged for 0.91. Personally, I think the first one is better, because in essence, those who sell USDC at a discount will carry the debt loophole. The second is to force everyone to share the shortfall equally, and the stable currency will be abolished.
@wildPiPiLu: It is Silicon Valley Bank that decides the fate of USDC.
If a large financial institution finally chooses to acquire Silicon Valley Bank, then the problems faced by Silicon Valley Bank and Circle will be resolved. If Silicon Valley Bank is eventually liquidated, it will basically confirm Circle’s short-term liquidity loss of 3.3 billion, and the prospects are worrying. Facilitating a takeover will be the most important task for the Fed and the New York Fed this weekend.
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