[HN Gopher] An Update on USDC and Silicon Valley Bank
___________________________________________________________________
An Update on USDC and Silicon Valley Bank
Author : VagueMag
Score : 95 points
Date : 2023-03-11 20:27 UTC (2 hours ago)
(HTM) web link (www.circle.com)
(TXT) w3m dump (www.circle.com)
| paulpauper wrote:
| _In such a case, Circle, as required by law under stored-value
| money transmission regulation, will stand behind USDC and cover
| any shortfall using corporate resources, involving external
| capital if necessary._
|
| I don't get it..the money is gone. Is there something I am
| missing here? You cannot just magically fix a shortfall.
| rvnx wrote:
| It can, because they are investing the funds on t-bills or
| similar instruments with a 5% yield, and they don't pay any
| interest to the USDC holders.
| danaos wrote:
| I have always kept away from circle after they were caught
| manipulating reviews.
|
| https://www.reddit.com/r/Bitcoin/comments/5ms1zc/after_being...
| capableweb wrote:
| I'm pretty sure that's against Apple's App Store T&C and the
| application would be banned by flooding fake 5 star reviews. It
| would also be pretty easy to detect.
|
| Was the app ever banned or everything proceeded as normal? Is
| Apple in Circle's pocket somehow?
| yieldcrv wrote:
| Anybody arbing this with their MEV bots?
|
| A couple MEV trackers on twitter are showing people making a shit
| ton of money through various onchain protocols goofing.
|
| (this has nothing to do with the USDC redemption mechanism,
| nobody is doing that while banks are closed and Coinbase is
| disabled)
| O__________O wrote:
| Anyone have any idea based on trading price and volume roughly
| how much was lost below 1:1 peg in past 24-hours?
| [deleted]
| optimalsolver wrote:
| >Moreover, SVB has a strong franchise that is at the center of
| American entrepreneurship and technology industry growth.
|
| Tl:Dr: Save us, Big Government.
| rekttrader wrote:
| That's a cheap shot, does roku deserve a 470+m haircut?
| rekttrader wrote:
| Also they are 95% solvent as a bank... this too will pass.
| paulddraper wrote:
| > deserve
|
| IDK what that word means, in a financial context.
|
| Can you get paid based on this "deserve"?
|
| ---
|
| But in reality, no, no one will lose 100%.
| JumpCrisscross wrote:
| > _does roku deserve a 470+m haircut_
|
| Yes. Public company CFOs should not have this level of non-
| AAA counterparty risk concentration. (SVB were A1 and Baa1
| [1] / A+ and BBB+ [2].)
|
| [1] https://money.usnews.com/investing/news/articles/2023-03-
| 10/...
|
| [2] https://wolfstreet.com/credit-rating-scales-by-moodys-sp-
| and...
| VagueMag wrote:
| I would like to know how I can get the $400K/year corporate
| treasurer job that's just "park all the money in a single
| bank account with no insurance."
| throw03172019 wrote:
| Mmmm no. That's not what is going on here.
| [deleted]
| malermeister wrote:
| Yeah, it is pretty ironic having this come from all the same
| people that were oh-so-libertarian when it wasn't affecting
| them.
| darcys22 wrote:
| They deposited 3B with this bank for the specific purpose of it
| being a safe place.
|
| Their 10B in cash was spread over 6 banks to diversify the bank
| risk.
|
| They have plenty of higher risk investments in their treasury,
| but these ones were the safe ones intentionally put into banks
| with insurance. If the government protection wasn't there the
| investment would't have been there in the first place
| JumpCrisscross wrote:
| > _10B in cash was spread over 6 banks to diversify the bank
| risk_
|
| This is nonsense Treasury management. Fidelity spreads
| checking account deposits across twenty-six banks to reach
| $3mm FDIC coverage [1]. Beyond sweep, Circle's assets should
| be in short-term, on-the-run Treasuries, repos and commercial
| paper.
|
| [1] https://accountopening.fidelity.com/ftgw/aong/aongapp/fdi
| cBa...
| darcys22 wrote:
| They do hold 32B in short term treasury bills though
|
| https://www.blackrock.com/cash/en-us/products/329365/
|
| These funds appear to be specifically for short term
| redemptions, if they turn over 3B in redemption's every 7
| days then how are they meant to keep less then that in the
| banks
| benatkin wrote:
| But the insurance doesn't apply to the full amount.
| oldgradstudent wrote:
| The insurance is negligible for them.
| benatkin wrote:
| Hence the government protection should be partial. Mostly
| just making sure SVB's assets are used to lessen the
| impact of the closure. If that results in Circle getting
| pennies on the dollar then so be it.
| oldgradstudent wrote:
| > Mostly just making sure SVB's assets are used to lessen
| the impact of the closure
|
| That's standard practice.
|
| Money from liquidation goes first to insured deposits,
| then what remains goes to uninsured deposits, then to pay
| other debts, and finally if anything is left, to
| shareholders.
|
| Looks like here it will only cover insured deposits and
| substantial fraction of uninsured deposits.
| benatkin wrote:
| Yeah, some think that _substantial fraction_ will be
| 100%. We 'll see!
|
| I don't want to give Circle one cent of bailout money,
| though. And their post is saying that they are owed a
| full bailout because they participated in the bank run on
| the day of the bank run, and also begging for a full
| bailout. Pretty pathetic.
| jfengel wrote:
| They don't even need a bailout. Ordinary big government
| regulation is solving this.
| bb88 wrote:
| After the fall of Terra, it's clear that stablecoins can only go
| down in value. There's also no FDIC to step in to take over the
| failing stablecoin. You're trusting USDC and by extension
| BlackRock to do the right thing here.
|
| If it's not a security than it's not regulated.
| mnaei wrote:
| Over the last 24 hours USDC had a low of $0.85 at 3 AM EST to a
| high of $0.98 at 3 PM EST.
|
| I wonder how many startups would take a 2% - 15% cut to
| withdraw their money for short term expenses.
|
| Is there a secondary market for deposits at banks? Like a
| Silicon Valley Bank Stable Coin (Probably would have been
| called a Silicon Valley Dollar before 1913)
| joosters wrote:
| ... _it 's clear that stablecoins can only go down in value_
|
| That's just a truism, regardless of the stablecoin or the state
| that it's in. No-one should ever expect a $1 stablecoin to
| trade significantly higher than $1, since the creators of the
| coin can easily arb the difference to pocket some free money.
| bhaak wrote:
| Terra was no stablecoin and it has been constantly pointed out
| that it wasn't.
|
| USDC is backed 1 USDC for 1 USD. What you're actually seeing
| here is that the traditional finance system has lead to a crash
| in crypto. That's almost refreshing. Usually crypto fucks up by
| itself (see FTX and Terra for the most recent ones).
| whimsicalism wrote:
| 1 USD worth of treasuries or bank deposits, not a USD
| directly.
| bb88 wrote:
| What's their balance sheet at the moment assuming 8% of cash
| is missing? Is it still 1:1 or 1:.94?
|
| Also coindesk says TerraUSD is a stablecoin.
|
| https://www.coindesk.com/price/terrausd/
|
| Washington Post too:
|
| https://www.washingtonpost.com/business/what-are-
| stablecoins...
|
| Also Gemini says it as well:
|
| https://www.gemini.com/en-us/prices/terrausd-ethereum
| bhaak wrote:
| Their balance sheet is still 1:1 as the 8% at SBV has not
| yet been written off.
|
| The market reacts faster of course but the market has no
| crystal ball. It can't predict what's going to happen.
| JumpCrisscross wrote:
| > _USDC is backed 1 USDC for 1 USD_
|
| It's at least 87C/ and 23C/ of priority unsecured claims on a
| bank in receivership.
| chejazi wrote:
| I assume you're deriving the 23C/ from the 23% they have
| banked, but I would like to note that of that 23%, roughly
| a third (3.3bn of 9.7bn) was with SVB. The rest was with
| other banks not facing the same issue.
| incrudible wrote:
| Terra was collateralized by crypto. USDT is collateralized
| by... something, maybe. Given that USDT always regained its peg
| regardless, the depeg of USDC seems like an overreaction.
| Lionga wrote:
| USDT always regained its peg until one day it doesn't
| incrudible wrote:
| That is not the point. USDT repegged from far worse news.
| It is a hot potato, but the market used to price that risk
| at almost zero for 99.9% of the time.
| bb88 wrote:
| Terra regained it's peg until it didn't.
| incrudible wrote:
| Terra is not even in theory backed by real dollars, it
| had a known failure case, which did in fact occur. Again,
| the market priced that risk at virtually zero until the
| failure case was tangible.
| l-lousy wrote:
| That day will be when they finally release an audit
| baq wrote:
| This will never happen, it'll have to be when redemptions
| stop working.
| incrudible wrote:
| They may well be 100% collateralized in bad collateral.
| Same for USDC really, except the collateral is not as
| bad.
| braingenious wrote:
| I'm not very knowledgeable on this topic, so I have a legit
| question about all of this:
|
| How is pausing withdrawals not blatant currency manipulation? If
| I had USDC and lost all faith in it yesterday, shouldn't I be
| allowed to cash out today?
|
| Also, if they've got many billions in cash, why would losing
| access to a sliver of it justify shutting down withdrawals?
|
| "Trust us, it's worth a dollar! Or don't trust us! It doesn't
| matter because you don't have any choice but to hold USDC until
| we deem it advantageous to us to allow you to exchange them for
| real money!"
| 323 wrote:
| They didn't pause anything. The US banks did, by not working in
| the weekend (for large sums).
|
| If you had 1 billion USD with your favorite US bank, that would
| be paused too right now.
| braingenious wrote:
| I'm hearing that you can't even use USDC to exchange for
| bitcoin/ETH on Coinbase right now. What does converting
| between types of crypto have to do with banks? Those
| transactions should in theory have nothing to do with a
| banking transaction.
|
| It seems like they're simply forcing people to hold USDC,
| full stop, and are blaming banks for their decision to do so.
| capableweb wrote:
| USDC is supposedly backed by USD. If Cirle/Centre doesn't
| have access to enough USD, they cannot maintain the peg of
| USDC.
| nikanj wrote:
| Because crypto is not currency. It's more like the fake money
| at Habbo Hotel
| samstr wrote:
| [dead]
| capableweb wrote:
| Imagine that you use a currency made by a specific company,
| lets say it's called PaypalCoin. Part of the value of the
| currency is that the company manages it, part of the risk is
| that a company manages it. So you'll only be able to exchange
| it for X as long as Paypal say you can exchange it for X. This
| is part of what PaypalCoin is, so if you use it, you should be
| aware of this.
|
| This is basically what USDC is, and Circle is the organization
| that controls it. It is not a decentralized currency, it's a
| centralized digital currency. If Circle blacklists you and your
| funds, you won't be able to trade it for USD in the traditional
| exchanges, you'd only be able to do it P2P. This has happened
| already, with Tornado Cash, so it has precedent, not something
| I'm making up.
|
| > USDC is issued and redeemed in accordance with Centre
| policies including the Centre Blacklisting Policy. Centre
| reserves the right to block the transfer of USDC to and from an
| address on chain as permitted under the Centre Blacklisting
| Policy.
|
| https://www.circle.com/en/legal/usdc-terms &
| https://www.centre.io/hubfs/PDF/Centre_Blacklisting_Policy_2...
|
| If Circle says you cannot exchange your USDC for USD, then
| that's the rule. If you don't want that possibility, you
| wouldn't use USDC in the first place.
| nevi-me wrote:
| One could ask whether halting trading of a stock is
| manipulation or not.
|
| Some risks arise mostly out of urgency, and not having
| countermeasures could have catastrophic results which otherwise
| would have been avoided by pausing the process. If Circle were
| operating as a fractional reserve bank where it borrowed from
| you by virtue of a positive bank balance, lent me 80% of that,
| and only kept 20%; pausing honouring withdrawals would likely
| be illegal.
|
| My view of this is that it's unrealistic to expect a company to
| store 100% of its assets in immediately avaialable deposits
| whereas international regulations that apply to banks require
| ~30 days of liquid supply.
|
| In this case, the legal contract between Circle and its
| depositors (holders of USDC) is that it'll exchange 1:1.
|
| intrinsically, Circle seems to demonstrate that this contract
| isn't yet broken, but they can't continue to honour that
| agreement over a weekend when there's uncertainty of which
| avenue those funds will come from.
|
| The selling pressure is purely from the secondary market where
| you're selling me USDC and I'm giving you 0.95 USD.
|
| > Also, if they've got many billions in cash, why would losing
| access to a sliver of it justify shutting down withdrawals?
|
| Because those billions are in T-bills that have to first be
| sold. And the "cash on hand" is ultimately with banks that are
| holding a fraction of it.
|
| > "Trust us, it's worth a dollar! Or don't trust us! It doesn't
| matter because you don't have any choice but to hold USDC until
| we deem it advantageous to us to allow you to exchange them for
| real money!"
|
| Well, "we're enabling redemption on Monday" doesn't equate to
| the above.
|
| If my pastry shop runs out of already baked goods during the AM
| peak, I can only ask my customers to wait for me to finish
| baking more. If there was a pastry regulation, its review would
| say that I should start baking more pastries in future.
| braingenious wrote:
| >If my pastry shop runs out of already baked goods during the
| AM peak
|
| If your pastry shop had 40 billion donuts, and you claim that
| 10 billion of those donuts are available for sale
| immediately, do you close your shop when you lose 3.3 billion
| of them, leaving you with only 6.7 billion donuts that are
| still sitting there?
| tekla wrote:
| What they don't bring up. The peg is a lie, hit $0.87.
|
| https://www.cnbc.com/2023/03/11/stablecoin-usdc-breaks-dolla...
| toomim wrote:
| But currently $0.96.
|
| https://www.livecoinwatch.com/price/USDCoin-USDC
| bhaak wrote:
| The peg is held up by the belief that you can always get 1 USD
| for 1 USDC.
|
| Obviously the market had some doubts about this today and then
| liquidity issues drove the price down. I'm somewhat surprised
| that it climbed back up this fast which means that the panic
| seems to be over (for the moment).
| ed25519FUUU wrote:
| For something that's supposed to be a 1:1 peg, running at 4%
| below dollar value is significant.
| mdasen wrote:
| That means it's not really a peg. If you have a peg, it means
| that the currency issuer is willing to buy their currency for
| a set amount. Right now, Circle isn't willing to buy USDC for
| $1 USD - therefore, there is no peg.
|
| Or maybe what we're talking about is a broken peg. Circle was
| willing to pay $1 USD for a USDC, but they're no longer
| willing to pay that (at least temporarily). Maybe countries
| have seen their pegs broken because they couldn't actually
| defend their peg. They'd promise "we'll give you $1 USD for
| every 2 PegCurrency" and then someone would come along with a
| ton of PegCurrency and ask for dollars and they wouldn't have
| enough dollars to give them. A peg only lasts as long as you
| have the currency to keep paying at that rate.
|
| We'll have to see on Monday and Tuesday whether they will go
| back to defending their peg. Unlike many foreign currency
| pegs, they should have the cash to defend their peg to the
| last dollar (with the exception of losses incurred due to SVB
| going under). However, it still might mean a huge loss of
| confidence in USDC. If they're unable to offer liquidity when
| people want it, that's potentially a big problem for the
| product they're offering (but it also might not be: maybe
| people don't care about 24/7 liquidity and are ok with
| waiting several days for liquidity).
| Macha wrote:
| As far as I can tell, Circle is still willing to buy 1 USDC
| for 1 USD during business hours, which has always been
| Circle's policy.
|
| What has changed is that third parties no longer have
| sufficient faith in that to extend the offer to 24/7. e.g.
| before Coinbase would give you USD for your USDC on
| Saturday morning because they were happy enough that they
| could turn the USDC back into USD on Monday morning and
| that they had sufficient USD for the amount of people who
| were actually going to take them up on that.
|
| Now because of either the worry about SVB contagion or the
| amount of withdrawals vs coinbase's usd reserves, coinbase
| is no longer willing to give you an advance on that action,
| and is making you wait until they can immediately exchange
| the usdc you give them for usd from circle. Coinbase was
| never the one under the obligation to give you USD for USDC
| anyway.
|
| Obviously this is a little more complicated by Coinbase's
| 50% stake in Circle, but that's only relevant if a
| bankruptcy courts found misdeeds and a judge ruled Coinbase
| had to make up the shortfall due to said misdeeds, it's not
| a reason to be able to enforce Circle's liabilities on
| Coinbase as a day to day business matter.
| z3c0 wrote:
| I guess this was one of those "be greedy when everyone is
| being fearful" moments. An easy ~10% return.
| everybodyknows wrote:
| What if anything does this mean then? FTA:
|
| >As a regulated payment token, USDC will remain redeemable 1
| for 1 with the U.S. Dollar.
| tekla wrote:
| Its "lying". In the same way that SVB was solvent as long as
| there wasn't a run.
| wmf wrote:
| As the article says, it's redeemable within banking hours not
| on the weekend.
| bb88 wrote:
| Pausing USDC->USD over the weekend isn't going to help
| confidence either.
| charcircuit wrote:
| USDC -> USD always only ever worked during banking hours.
| Exchanges offering USDC <-> USD at any time have had to
| account for this and have enough reserves of USD and USDC
| themselves.
| obblekk wrote:
| 23% of the reserve, or $9.7B is held in cash.
|
| I think on Thursday, SVB saw cash outflow requests over $40b in
| one day. USDC peg is so far below 1 right now there will
| definitely be a lot of par arbitrage Monday trying to withdraw.
|
| Hopefully it doesn't take longer than a day for them to settle
| treasury trades, and maybe some people have lost the keys to
| their crypto. They could also possibly have a line of credit with
| instant settlement assuming they're truly solvent with marketable
| securities at market prices.
| dragontamer wrote:
| 3 month (or less) Treasury Bills are damn close to cash. I
| don't believe they lose value in practice, not even in the
| rapidly raising interest rate environment of the last year.
|
| The problem at Silvergate and Silicon Valley Banks is that they
| bought 10 year or 30 year bonds, not 3 month bills. Its a
| completely different composition, with completely different
| properties.
| bb88 wrote:
| Can one short USDC with leverage?
| WalterSear wrote:
| Short? I can't see this not returning to it's peg by the next
| news cycle. It's free money.
|
| SVB went bankrupt - as a business: it can't pay its bills.
| People are reacting to this as if the deposits have vanished
| entirely.
|
| If you think USDC is a shorting opportunity, short anything
| crypto. USDC is literally the second largest domino.
| dfadsadsf wrote:
| There is good chance that ~30% of deposits above 250k
| vanished. SVB really screwed up on trades. With equity at
| zero or close to zero, there is no backstop. Net present
| value of 2% securities that SVB loaded on is way below par.
| WalterSear wrote:
| Ah, that's different. I understood it to be ~$2 billion
| out of ~$200+ billion, not $60+ billion in losses.
| rewtraw wrote:
| Yes, primarily on Bybit.
|
| It's a terrible trade to make now though.
| 323 wrote:
| Yes, by creating a synthetic - you short BTC/USDC and long
| BTC/USD. This will create a USDC/USD synthetic. Both BTC/USDC
| and BTC/USD can offer up to 100x leverage, so the synthetic
| USDC will also be up to 100x.
| 0x53 wrote:
| Not easily that I know of, the best way would be to use a
| defi application like compound.finance. You can deposit usdc
| and take a loan against it in another currency. Then you
| repay the loan later. However, that is just a normal short.
| The only real way to lever this is to keep depositing the
| loan money, and taking out more loans which is expensive in
| terms of fees.
| rabf wrote:
| You can trade it with leverage here:
|
| https://www.bybit.com/trade/usdt/USDCUSDT
| SilasX wrote:
| Yes, and I have been, by accident! I borrowed USDC on
| Compound.finance a while ago, using wrapped bitcoin as
| collateral and the loan remains open. I was intending to just
| extract some equity from my BTC without selling it, not
| profit from crashes, but that effectively gives me a short
| position since I benefit from USDC being easier to buy and
| thus settle my debt.
|
| Last night I bought at a ~6% discount on Gemini.
| nscalf wrote:
| Yep, get a loan denominated in USDC. You can lever up in USDC
| and buy USDT with it.
| echelon wrote:
| The creators of USDC could destroy their own coins to restore
| the 1:1 reserve peg. I doubt they'd do it, but it would
| immediately restore confidence.
|
| Send them to a null address or commit to burning them in
| software. If they can restore the reserve, they could remint
| them.
|
| I'm a crypto bear (with modest crypto holdings for
| diversification), and I think this is an opportunity for these
| folks to step up to the plate and show they can meet these
| sorts of challenges. If you can successfully navigate a bank
| collapse, then maybe you deserve a seat at the table. I'm not
| holding out my hopes for USDC though.
| bhaak wrote:
| > The creators of USDC could destroy their own coins to
| restore the 1:1 reserve peg. I doubt they'd do it, but it
| would immediately restore confidence.
|
| Why should they? USDC is not an algorithmic stablecoin. For
| once, it's actually not a failure in crypto that lead to this
| depeg.
|
| I'm not even sure they are allowed to do it by their own
| contracts with their clients as long as it is not clear that
| the USD at SBV is really lost.
| phphphphp wrote:
| I'm not sure I follow. Circle don't hold tens of billions of
| USDC: USDC is minted when they receive USD at a one-to-one
| ratio. What coins are you proposing they burn? If there's
| $10bn USD missing they'd need to burn $10bn USDC.
| WalterSear wrote:
| IMHO, they are justifiably confident that this will all blow
| over in a few days, and that their deposits will be available
| to them soon after, albeit with a few percent missing.
|
| But I concur - they are showing their true colors by not
| defending the peg.
| tempsy wrote:
| how is it "so far below"
|
| it's recovered to less than a 4% discount
| charcircuit wrote:
| There is no fee to covert USDC to USD. So as long as you
| buying USDC and depositing it into Circle is less than $1 per
| USDC you make profit. As long as you make profit it makes
| sense to arbitrage as much as you can.
| tempsy wrote:
| that's if you have a Circle account which effectively no
| individual has access to. if you convert USDC to USD on
| Coinbase or another exchange you're paying the market rate
| charcircuit wrote:
| The arbitrage the comment was talking about would be done
| by people with Circle accounts. If you don't have an
| account it would be in your interest to sell your USDC
| for as close to $1 possible. This will inflate the value
| of USDC on the open market until Circle account holders
| start to fear that they will be holding the bag.
| tempsy wrote:
| if major usdc holders who have a circle account were
| primarily concerned with tiny arbitrage plays they
| wouldn't be holding a stablecoin earning zero yield when
| t-bills pay 5% to begin with
| saurik wrote:
| Coinbase actually does it 1:1 by proxy from Circle: you
| don't have to "trade" USDC-USD. They aren't right now,
| but they normally go above and beyond by being willing to
| do it on weekends, while Circle itself only operates on
| weekdays, and they don't want to stake their own fate
| towards that, so they said they are pausing doing that
| until Monday.
| Lionga wrote:
| Steady Lads
| Yizahi wrote:
| WHAT
| sbardle wrote:
| Hey NoCoiners, can you give us some coin?
| JohnTHaller wrote:
| For context: Stablecoin USDC depegged last night, hitting as low
| as $0.879. It's currently at $0.959.
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(page generated 2023-03-11 23:00 UTC)