It's ironic that a fiat bank is causing crypto to lose value.
Decentralized crypto actually went up while the centralized went down.
An Update on USDC and Silicon Valley Bank
151–160 of 204 posts
Re: An Update on USDC and Silicon Valley Bank
#152Earlier quoted context omitted.
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.
> I can't see this not returning to it's peg by the next news cycle. It's free money. But isn't this the problem? If over the weekend billions of dollars of USDC is purchased at less that $1 from people expecting to cash in on "free money" come Monday, Circle is going to have to be able to ensure that that actually happens, which could easily require more liquidity than remotely possible (edit: I just realized that C…
USDC is back to $0.98 as of Saturday evening.
Re: An Update on USDC and Silicon Valley Bank
#153Earlier quoted context omitted.
Yeah, it sounded like a perfect plan if no customers wanted to get their funds within the next 10 years. ¯\_(ツ)_/¯
No that's not it. You can sell the bonds any time. But now they're worth considerably less because interest rates are much higher now. They locked themselves in at rate that are now terrible for 10 years.
No, rvnx is correct. SVB held many of these assets as "hold to maturity" assets. Point being, if all of their customers didn't need to withdraw their money, then SVB would have been fine, as they could have safely held these assets to maturity and then redeemed them for full face value.
The problem is that just when their long duration bonds lost value is also when their startup-heavy customer base needed their money out for expenses, and with VC funding dried up they weren't getting new deposits. SVB's problem was that their liquidity issue became a solvency issue when it became public that they were forced to sell their long duration bonds at a steep loss to cover withdrawals.
Re: An Update on USDC and Silicon Valley Bank
#154Earlier quoted context omitted.
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).
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 peg…
> A peg only lasts as long as you have the currency to keep paying at that rate.
This logic applies to all bank deposits as well. SV Bank deposits were pegged to USD at a 1:1 ratio, they just broke the peg. People don't seem to realize USD bank deposits are not the same as USD. With "stable" coins it's more obvious because they have different names.
Re: An Update on USDC and Silicon Valley Bank
#155Earlier quoted context omitted.
> I can't see this not returning to it's peg by the next news cycle. It's free money. But isn't this the problem? If over the weekend billions of dollars of USDC is purchased at less that $1 from people expecting to cash in on "free money" come Monday, Circle is going to have to be able to ensure that that actually happens, which could easily require more liquidity than remotely possible (edit: I just realized that C…
USDC is back to $0.98 as of Saturday evening.
I don't think you understand my question or the issue at hand, but I think I have found some answers.
It doesn't matter if it was already $1 right now. The assumption is that everyone purchasing USDC today when it was below $1 is planning on selling it Monday as a quick arbitrage.
Assuming the peg is restored by Monday, Circle is still going to have to have a lot of liquidity to meet the demands of a huge number of people trying to realize that $1. Again, today was the highest volume ever for USDC and presumably many of those transactions are people expecting to cash out Monday.
It seems very possible to me, that Circle will not be able to meet the liquidity demands of keeping the peg and fulfilling their promise of $1 USD for 1 USDC. If they falter at all, and the peg doesn't hold, then anyone holding will immediately panic and attempt to liquidate their position leading to a collapse.
The piece of the puzzle I was missing is that I didn't realize that Circle claims that they have cash reserves (cash and 30-day treasuries) equal to the entire USDC market cap. So anyone who trusts that Circle has the liquidity and cash on hand to payout everything views this as free money.
I would point out that this "arbitrage" existing for more than a brief moment implies there are lots of people who do not believe that Circle can meet these demands and are happily unloading their positions.
Re: An Update on USDC and Silicon Valley Bank
#156Earlier quoted context omitted.
Why lock up the money for so long in such an unstable time as this? Better interest rates?
> Better interest rates? You betcha. Here's the rates for March 2021. 3M would have gotten you 0.05% APY, while 10Y gets you 1.45% APY. https://home.treasury.gov/resource-center/data-chart-center/...
The assets in their HTM portfolio did not all appear in March 2021 and it appears most of it was in various (C)MBS which likely paid a few bp more than comparable maturity treasuries. Unfortunately, the duration (sensitivity to change in interest rates) of mortgages extends in an increasing rate environment (less people prepaying) and so the portfolio probably lost a little bit more than comparable treasuries.
Re: An Update on USDC and Silicon Valley Bank
#157Earlier quoted context omitted.
No that's not it. You can sell the bonds any time. But now they're worth considerably less because interest rates are much higher now. They locked themselves in at rate that are now terrible for 10 years.
No, rvnx is correct. SVB held many of these assets as "hold to maturity" assets. Point being, if all of their customers didn't need to withdraw their money, then SVB would have been fine, as they could have safely held these assets to maturity and then redeemed them for full face value. The problem is that just when their long duration bonds lost value is also when their startup-heavy customer base needed their money…
No, the problem was that VC's led and pushed for the panic withdraw of all funds.
The bank would have had no problem if it was just the case of fewer new deposits. As to expense draw downs, those would have been ongoing and part of normal business operation.
Re: An Update on USDC and Silicon Valley Bank
#158Earlier quoted context omitted.
No that's not it. You can sell the bonds any time. But now they're worth considerably less because interest rates are much higher now. They locked themselves in at rate that are now terrible for 10 years.
No, rvnx is correct. SVB held many of these assets as "hold to maturity" assets. Point being, if all of their customers didn't need to withdraw their money, then SVB would have been fine, as they could have safely held these assets to maturity and then redeemed them for full face value. The problem is that just when their long duration bonds lost value is also when their startup-heavy customer base needed their money…
> No, rvnx is correct. SVB held many of these assets as "hold to maturity" assets.
He is wrong. This is just an accounting term / treatment. You can still sell them, and will obviously recognize the loss when you do. Had they been 3 month bonds, they could have been sold for basically full value and remained solvent.
Yeah, obviously the bank would have no problem if there were no bank run. But the reason there was a bank run was because the didn't have money because they locked their funds into bonds that subsequently lost all of their value.
Whether they were "held to maturity" or not, the fact is that they lost value. Not that they were locked away for 10 years untouchably.
Re: An Update on USDC and Silicon Valley Bank
#159Earlier quoted context omitted.
Would they really need USD reserves? Until the USD is withdrawn, it's just an entry on their internal ledger, and it can't be withdrawn outside business hours, and during business hours they can then exchange the USDC for USD.
It limits risk in the case of a depeg where you are unable to exchange USDC back into USD. You don't want all your company's assets to be exchanged into USDC.
This risk doesn't really depend on having USD reserves though, does it? If the company offers making the USDC USD trades outside of business hours, it's taking the risk. (Of course, if it has the reserves it can be sure to remain solvent if that risk manifests.)
Re: An Update on USDC and Silicon Valley Bank
#160Earlier quoted context omitted.
USDC is back to $0.98 as of Saturday evening.
I don't think you understand my question or the issue at hand, but I think I have found some answers. It doesn't matter if it was already $1 right now. The assumption is that everyone purchasing USDC today when it was below $1 is planning on selling it Monday as a quick arbitrage. Assuming the peg is restored by Monday, Circle is still going to have to have a lot of liquidity to meet the demands of a huge number of p…
> I would point out that this "arbitrage" existing for more than a brief moment implies there are lots of people who do not believe that Circle can meet these demands and are happily unloading their positions
I thought 1 new coin is created for each new $1