Investors fled three days ago when Circle-issued USDC failed to keep its peg against the U.S. dollar. Messari data suggests Circle has taken 3.9 billion USDC from the circulating supply since last Friday, leaving 39.5 billion USDC. Circle has added fresh coins to circulation, but less than it burned.
“It's likely to take some time before market participants feel comfortable parking their holdings in any stablecoin over long periods of time,” BitBull Capital CEO Joe DiPasquale told CoinDesk in an email.
The stablecoin issuer's ties to Silicon Valley Bank (SIVB) and the banking industry's near-collapse caused USDC supply to plummet. Circle's price against the dollar fell to $.87 cents on the Kraken platform early Saturday after confirming on Friday that $3.3 billion of its reserves were tied to SVB. Circle will move reserves to BNY Mellon after USDC regained its peg.
On Saturday, the USDC-USD trading pairings on centralized exchanges (CEXs), which offer real-time exchange rates into the dollar, drove daily transaction volume to an all-time high of $600 million, according to Kaiko. In the previous week, daily trade volume averaged $20–$40 million.
More trades are on CEXs, which “could not withstand the increase in sell volume, which led USDC's exchange rate to nosedive,” Kaiko stated.
Uniswap and Curve processed record-high trade volumes over the weekend as traders hurried to swap USDC for ether (ETH) and tether (USDT) amid de-pegging (USDT). Kaiko reported that Curve and Uniswap V3 processed almost $6 billion in USDC-USDT trade.
(Kaiko)
Kaiko says the dollar de-pegging has produced "countless arbitrage opportunities" in the DeFi ecosystem, with Aave and Compound receiving more than $2 billion in repayments, largely in USDC, as borrowers repay loans at a discount. Kaiko Research Analyst Riyad Carey told CoinDesk through Twitter that USDC fears will “hang over markets for a long time.”
"We likely haven't seen the end of USDC redemptions yet," he said. This is compounded by the lack of a widely adopted centralized, DeFi-focused stablecoin to replace USDC.
Jeff Dorman, chief investment officer of digital asset investment firm Arca, stated in a weekly newsletter on Monday that "likely one-fourth or half of USDC assets under management"—worth $10-$20 billion—will be redeemed. He suggested USDC may recover.
Dorman wrote that Circle, Coinbase, and a lazy susan of bursting banks hold USDC's true assets. “If USDC passes this stress test, it'll likely grow assets again.”
In a weekly blog, Coin Metrics said the USDC event showed “the hazards posed by excessive reliance on centralized infrastructure, and will be certain to inform future decisions.”