[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. ___________________________________________________________________ (page generated 2023-03-11 23:00 UTC)