Sudden Decline in "USDC" and Credit Issues with Stablecoins

2023-03-20, 06:48

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Due to the impact of the bankruptcy of Silicon Valley Bank, the stablecoin "USDC" pegged with the US dollar fell from $1 to $0.88.

Circle, the company that issued "USDC," announced that Silicon Valley Bank had $33 billion in outstanding remittances, which was the starting point of the event.

At the same time as the announcement, credit unrest spread and triggered a run on the "USDC," leading to differences with the US dollar. However, after the decline, Circle stated that "all USDCs can be exchanged for dollars at a ratio of 1:1." The USDC returned to $1 after three days of decline.

First of all, stablecoins refer to cryptocurrencies that are linked to fiat currencies and have low price fluctuations. They are divided into three types:

1. stablecoins backed by fiat currency
2. stablecoins backed by crypto assets
3. stablecoins that determine the supply based on market demand

Among them, the USDC is a stablecoin backed by fiat currency and short-term treasury bonds. And because it can prove reserves, it can achieve recovery.

"USDT" and "USDC" are both fiat-backed stablecoins, while the stablecoin "DAI" traded in Japan is crypto-backed stablecoin.
The collapse of holding basic fiat currencies and virtual currencies will lead to a loss of confidence in stablecoins and further pose their collapse.

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<div>Author: **Peperon**
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
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