An Update on USDC and Silicon Valley Bank • Hacker News Board

Re: An Update on USDC and Silicon Valley Bank

#181

Post by vkou » Sun, Mar 12, 2023, 9:35 AM UTC

beezle wrote: post #157

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, 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.

> No, the problem was that VC's led and pushed for the panic withdraw of all funds.

If you knew that your bank was insolvent, would you withdraw your funds before SHTF? Or would you twiddle your thumbs until everyone else did that, and your accounts got frozen, with you sweating bullets over whether or not you'll be taking a haircut on your deposits?

Would your withdrawal be a 'panic', or simply a rational decision to not be the moron left holding what might be an empty bag?

Re: An Update on USDC and Silicon Valley Bank

#182

Post by guipsp » Sun, Mar 12, 2023, 9:45 AM UTC

mrcggl wrote: post #180

Still trading at 6% discount, on top of which you can lever up to 5x on-chain (so no counterparty risk). Seems excessive considering what we know.

"no counterparty risk" is not completely accurate

Re: An Update on USDC and Silicon Valley Bank

#183

Post by charcircuit » Sun, Mar 12, 2023, 9:49 AM UTC

tsimionescu wrote: post #179

baq wrote: post #76

Earlier quoted context omitted.

This will never happen, it’ll have to be when redemptions stop working.

Is there any proof that anyone has ever successfully redeemed USDT from Tether?

Yes, there are even people on HN that have reported successful redemption of tether for USD. You can ask people directly. It's not like this is a rare thing that never happens. If people weren't able to do so you would expect people to actually make claims aginst it.

Re: An Update on USDC and Silicon Valley Bank

#184

Post by jeroenhd » Sun, Mar 12, 2023, 9:49 AM UTC

capableweb wrote: post #87

danaos wrote: post #49

I have always kept away from circle after they were caught manipulating reviews. https://www.reddit.com/r/Bitcoin/comments/5ms1zc/after_being...

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?

Apple is known to loosen its rules around big apps. Facebook and other big players have gotten away with many privacy violations that any small app would be blacklisted for, simply because Apple knows banning them would damage their brand more than making special rules for big players does.

If Apple were to ban Coinbase, many people would probably blame Apple for restricting access to their cryptocurrency rather than thank them for standing up for fair app store reviews. Instead, they've probably just asked them nicely to stop doing whatever would be ban-worthy otherwise, with a ban (and a press statement) ready in case they don't cooperate.

It wouldn't make business sense to ban a popular app for something as silly as fake reviews, especially with the amount of customer money involved.

Re: An Update on USDC and Silicon Valley Bank

#185

Post by netheril96 » Sun, Mar 12, 2023, 10:06 AM UTC

joosters wrote: post #33

bb88 wrote: post #3

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.

... 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.

Actually, certain alogrithmic "stablecoins" are designed to oscillate around fiat so it is possible to be higher than $1. An example is AMPL: https://coinmarketcap.com/currencies/ampleforth/. Of course, its value oscillates so much that "stable" might be a misnomer, but that is its goal.

Re: An Update on USDC and Silicon Valley Bank

#186

Post by [deleted] » Sun, Mar 12, 2023, 10:58 AM UTC

charcircuit wrote: post #54

tempsy wrote: post #52

Earlier quoted context omitted.

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

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.

[deleted]

Re: An Update on USDC and Silicon Valley Bank

#187

Post by vgatherps » Sun, Mar 12, 2023, 11:07 AM UTC

TedDoesntTalk wrote: post #160

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…

> 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

Most people trading USDC aren't creating/redeeming directly with Circle, they're transacting on an exchange where the price is simply determined by supply and demand.

Circle can only redeem during bank hours, so almost everybody involved maintains a buffer of easily accessible dollars to paper over. However in any sort of stressful time these buffers get used up. With no buffer to satisfy the 1USDC=1Dollar, redemptions stop until bank hours and there's no arbitrage opportunity.

For the most part nobody really cares if one of these buffers gets used up because you'll just hold USDC inventory for size. But when the solvency of USDC is in question, nobody wants to hold USDC inventory, and so there's no buying pressure for USDC below $1.

Another factor is that even if you think the USDC fair is .97, not .92, buying below .97 isn't necessarily a good trade. You might be last in line to do a 1-1 redemption, and by that time, the hole isn't $1bn on $40bn but $1bn on $5bn.

Re: An Update on USDC and Silicon Valley Bank

#188

Post by plonk » Sun, Mar 12, 2023, 11:07 AM UTC

Xeoncross wrote: post #144

spywaregorilla wrote: post #137

Earlier 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.

So weird to think that near-zero interest rates are the best you can do for the next 10 years. I'm pretty sure everyone way saying "lock in this low interest rate before they go up again!"

It was locked? That’s the problem. The fixed-rate bonds had to be sold to give customers their cash.

Re: An Update on USDC and Silicon Valley Bank

#189

Post by extheat » Sun, Mar 12, 2023, 11:08 AM UTC

jacobsimon wrote: post #177

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…

Had the same thought, but why would they choose to reduce bank risk unless they already knew about the liquidity gap?

I believe their last earnings call was what precipitated the fear in the bank and ultimately what caused the big spike in withdrawals that led to them running out of immediately free cash.

Re: An Update on USDC and Silicon Valley Bank

#190

Post by capableweb » Sun, Mar 12, 2023, 11:15 AM UTC

easrng wrote: post #140

capableweb wrote: post #59

Earlier quoted context omitted.

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 Ci…

If Circle blacklists you and your funds you can't do anything with them at all afaik.

That's not true. They still live on a blockchain not controlled by them, so you can still send them around from account to account. You won't be able to get USD from them though via a CEX.