Why did the stable cryptocurrency USDC lose parity with the dollar this weekend?

Why did the stable cryptocurrency USDC lose parity with the dollar this weekend?

One of the cryptocurrencies largest cryptocurrency on the market is in trouble. The stablecoin call USDC took a major hit this weekend after falling from one dollar to 87 cents, causing panic among its investors.

This Saturday, the value of the USDC was affected by the crisis that a large bank in the technology sector is going through: Silicon Valley BankWhat happened?

A new crisis?

A stable coin is a cryptocurrency that, under physical or algorithmic reserves, keeps its value tied to that of a fiat currency. In this case, the USDC had its parity with the U.S. dollar, so it should not fall at any time that value.

However, its management company, Circle, accepted this weekend that $3.3 billion of its $10 billion in cash reserves were in the Silicon Valley Bankwhich has fallen under the control of the U.S. authorities due to “insolvency” of funds.

On Saturday, March 11, the USDC fell to a record low of 87 cents. According to data from CoinGecko, the previous all-time low was approximately $0.97 in 2018. More recently, the coin fell to $0.99 following the collapse of Three Arrows Capital.

At the time of writing, the USDC is at 95 cents.

A house of cards

The stablecoins serve as a backup method in the midst of conventional money and cryptocurrencies. And their functionality allows an error to cause an ongoing crisis. For example, a handful of other stable currencies, including FRAX and DAI, use USDC as collateral.

On Friday, Circle assured that it would “continue to operate as normal” while it awaits more information on what will happen to SVB customers.

“As of Thursday, we had initiated transfers of these funds to other banking partners. While these transfers had not yet been settled as of close of business on Friday, we remain confident in the FDIC’s handling of SVB’s situation and are ready to receive these funds,” Circle said Saturday, adding that $5.4 billion of its cash assets are held by BNY Mellon, “one of the largest and most stable financial institutions in the world.”

The company expects to be back to normal this Monday.

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Daniel Chapman