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An Update on USDC and Silicon Valley Bank

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Re: An Update on USDC and Silicon Valley Bank

#161

Post by charcircuit »

PheonixPharts wrote: post #146
WalterSear wrote: post #45

Earlier 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…

The belief would be that USDC could repeg while being under collateralized. If there is enough holders of USDC who don't mind that and enough USDC locked up in various smart contacts, wallets with lost keys, or there being people who have missed the news, then Circle may have enough liquidity to continue operating USDC despite not having enough funds to cash out all USDC which technically exist.

Re: An Update on USDC and Silicon Valley Bank

#162

Post by charcircuit »

tgsovlerkhgsel wrote: post #159
charcircuit wrote: post #135

Earlier quoted context omitted.

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.)

It's just the idea to limit how much USDC you are holding at one time. The more USDC you hold, the more risk there is. A reserve of USDC is just another way of saying that you have a max of USDC you are willing to hold.

Re: An Update on USDC and Silicon Valley Bank

#163

Post by ethbr0 »

PheonixPharts wrote: post #155
daydream wrote: post #152

Earlier 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…

If the peg is restored, why would a holder of sub-$1 USDC redeem instead of just selling to the market?

Re: An Update on USDC and Silicon Valley Bank

#164

Post by oarabbus_ »

dzink wrote: post #126

Circle moved assets out of somewhere and into BNY Mellon last week. Where is that somewhere (Was it SVB, since 3.3Bn “remain” in SVB?). When did they move money out of SVB and how much? Did Circle and USDC trigger the sudden liquidity gap in SVP that triggered the fire sale of 21B at a loss? Is the crypto panic triggering the bank runs? “Last week, we took action to reduce bank risk and deposited $5.4bn with BNY Mell…

>Did Circle and USDC trigger the sudden liquidity gap in SVP that triggered the fire sale of 21B at a loss?

It seems unlikely that would be the case, 5.4B would represent only 2.5% of their AUM at the time of failure. However the Fed did reduce the bank cash reserve requirement to 0% in March 2020, so it's technically in the realm of possibility... but having to sell off assets after a 2.5% drawdown is analogous to being 40x leveraged.

It would be unbelievably poor risk management if this were the case, and seems more likely a much larger event than a few crypto companies (which are small in the grand scheme of things) withdrawing deposits.

Re: An Update on USDC and Silicon Valley Bank

#165

Post by hn_throwaway_99 »

spywaregorilla wrote: post #158
hn_throwaway_99 wrote: post #153

Earlier quoted context omitted.

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…

There are a significant amount of other banks that are in the same situation with respect to long term bonds that have lost a lot of their value due to rising rates.

The difference for many of them, compared to SVB, is that they have a much more diversified deposit base, so they don't have the same dynamic of the majority of their depositors all needing their money out due to VC funding drying up.

The fact that bonds lost value is really not an issue if they didn't need to liquidate them before maturity. After all, someone deposited $100, and SVB turned around and bought a bond for $100. If they were able to hold that bond to maturity, they would get $100 dollars back to make the depositor whole. The problem is that depositor wants their money back now while the bond is worth less than par value.

Re: An Update on USDC and Silicon Valley Bank

#166

Post by swatcoder »

hn_throwaway_99 wrote: post #165
spywaregorilla wrote: post #158

Earlier quoted context omitted.

> 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…

There are a significant amount of other banks that are in the same situation with respect to long term bonds that have lost a lot of their value due to rising rates. The difference for many of them, compared to SVB, is that they have a much more diversified deposit base, so they don't have the same dynamic of the majority of their depositors all needing their money out due to VC funding drying up. The fact that bonds…

> After all, someone deposited $100, and SVB turned around and bought a bond for $100. If they were able to hold that bond to maturity, they would get $100 dollars back to make the depositor whole.

No. In your example, someone deposited $80 and SVB turned around and bought a bond for $80. In 10 years, that bond will be almost certainly be worth about $100. Because it’s reliable, theu can use that value for some of their long-view bookkeeping and projections, but it’s still an $80 asset purchased for $80 and worth $80.

Some months later, the market for those bonds starts to shift. That bond will still be worth $100 eventually, but now trades for only $70.

This puts SVB into a different risk position than they were previously. While their books still reflect a $100 asset in 10 years, they actually hold less value in assets now than they started with and are more vulnerable to a run than they were previously.

Where they could have immediately sold that $80 bond to meet an $80 obligation, they can now only sell it for $70. That’s a problem. It’s a bearable problem as long as nobody asks for too much money at the wrong time, but the fact that they’re so much more vulnerable invites people to do exactly that, in order to make sure they’re not caught as the last one out the door.

Re: An Update on USDC and Silicon Valley Bank

#167

Post by simple-thoughts »

braingenious wrote: post #56

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 doe…

This is exactly why I never hold USDC. Many stablecoins are well managed. USDC has a history of slimey behavior that has always made them appear much riskier to me than alternatives. For instance I don’t trust USDT management either, but I would trust them more than USDC management.

Re: An Update on USDC and Silicon Valley Bank

#169

Post by mike_d »

PheonixPharts wrote: post #146
WalterSear wrote: post #45

Earlier 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…

> I'm far from a crypto expert so could you clarify what I'm missing?

USDC isn't an algorithmic stablecoin or backed by non-cash assets. It is a coin that is redeemable 1:1 for cash, always. They have approximately $40b in coins and is only "short" $3.3b. Right now the first 91% to redeem can still get a full dollar, not everyone who redeems gets 91 cents.

People who have no idea how it works are panic selling fearing a crash. Other people are buying up as much as they can because you're effectively selling someone a dollar bill for 95 cents, a deal I'd take every day.

Re: An Update on USDC and Silicon Valley Bank

#170

Post by PheonixPharts »

ethbr0 wrote: post #163
PheonixPharts wrote: post #155

Earlier quoted context omitted.

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…

If the peg is restored, why would a holder of sub-$1 USDC redeem instead of just selling to the market?

Who is buying billions of dollars of USDC for $1 each and.. why are they doing this?

My understanding was that the entire point of a stablecoin was to smooth transactions between other crypto currencies, so most of the buying and selling of USDC was to convert between one coin and "USD" while still remaining in the crypto ecosystem.

The entire reason the peg can remain is because one company, Circle, is guaranteeing to purchase it for $1. If you want to cash out a small amount, sure you can go through a company like Coinbase but if you try to cash out billions then that will just force Coinbase to go to Circle in order to maintain their own liquidity.

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