Rip USDC 🪦
As we all know that USDC got belted a few days ago and it went as low as $0.81.
Wait, wasn't it a stablecoin? Wasn’t it supposed to be $1 always?
How would that happen if someone stole their money from their locker?
Yes, this is the actual scenario because Silicon valley bank (SVB) had a bank run.
So basically when new stable coins are launched into the market or released (whatever sounds good for you guys), they back it up by cash or cash equivalents (bonds), so that the price remains stable.
For eg. Let’s say you buy 1 banana from me by giving $1. I will keep that $1 safely and will never use it anywhere else. Now let’s just say, you don’t want that banana (uneaten) anymore, you have no option but to come to me and return it to me and collect that $1 back from me. By this way, the value of Banana will always remain $1 itself.
Did anyone gave you a better explanation of stable coins before?
Now, like every Silicon valley startup Circle (Parent company that owns USDC) has kept their money in SVB itself. Not much money, just $40 Billion, that’s it!
Now as soon as SVB had a bank run, everybody tried to remove money from that bank & for our luck, CIRCLE was successful in removing most of it ie. $36.7 billion but the remaining $3.3 billion is still stuck there only. (basically, you may never get it back)
Which means that all the USDC is not completely backed by cash now. Just think, I have given you 10 bananas taking $10 from you guys and I have spend $2 for myself, so does that mean 1 bananas = $1 (or) 1 bananas = $0.8
Let your answers flow in the comments!
So as soon as people got to know that USDC is not completely backed by cash, people started selling USDC like anything due to which the price went to $0.81 from $1, so people started panicking and that’s why you are reading this newsletter too.
So the question is, will USDC go back to $1?
Yes there are possibilities, if
SVB gives back the money to Circle
If Circle takes a loan to back USDC
If Circle had taken any insurance
Arbitrage traders play a major role when there’s price difference (slow process)
IDK, you tell me if there are any possibilities.
How much money did you lose because of this crash? Drop your pain in the comment section.