Why Is USDC Depegging And Keep Dropping?

Why is USDC Depegging and Dropping Right Now? The depegging can happen due to various reasons, including market forces or changes in the underlying asset’s value.

For investors and users who rely on the stablecoin’s stability, this can have significant implications, leading to sudden value changes that are challenging to predict or manage.

In this review, we will explore the USDC stablecoin depegging and its implications for investors and users.

What’s USDC

Why Is USDC Depegging And Keep Dropping?

USDC is a stablecoin that was launched in 2018 by Circle and Coinbase, two of the largest cryptocurrency companies in the United States.

A stablecoin is a form of digital currency that is created to maintain a steady value in relation to a particular asset, for instance, the US dollar

USDC is pegged to the value of the US dollar, with each token being backed by one dollar held in reserve.

The purpose of USDC is to provide a stable alternative to other cryptocurrencies, such as Bitcoin or Ethereum, which can experience significant price volatility.

This stability makes USDC more suitable for use in everyday transactions, such as buying goods and services or transferring money between individuals.

USDC has gained popularity in the cryptocurrency world, with many exchanges and platforms accepting it as a form of payment.

It is also used in decentralized finance (DeFi) applications, where users can earn interest on their USDC holdings or use it as collateral to borrow other cryptocurrencies.

In order to maintain its stable value, USDC undergoes regular audits to ensure that the amount of US dollars held in reserve matches the number of USDC tokens in circulation.

This means that USDC is fully backed by US dollars, making it what is known as a “fully reserved” stablecoin.

USDC stablecoin depegging:

Without any Federal rescue plans, a Circle executive sees broader consequences for businesses, banking, and entrepreneurs. At the time of writing this article, USDC has lost three percent (3%) of its value and is trading at $0.968.

The drop in USDC’s price was almost immediate after USD Coin (USDC) issuer Circle disclosed it was unable to withdraw 3.3 billion USD of its 40 billion USD from Silicon Valley Bank.

Circle had started a wire transfer to remove its cash from SVB on March 9. On March 11, two days later, Circle revealed that 3.3 billion USD of the USDC reserves had remained at Silicon Valley Bank, and the wire transfers had not been fully handled.

As shown by TradingView data, the announcement caused a drop in USDC prices. Prior to this depegging, Silvergate Bank, a cryptocurrency-friendly bank, announced that it would “voluntarily liquidate” its assets, and Circle declared that it had discontinued ties with the bank.

The announcement of SVB’s closure caused shares of Signature Bank Holding Corporation (SI) to drop by 12%, and two popular cryptocurrency exchanges, Binance and Coinbase, declared that they would block USDC conversions.

Implications for investors and users

The depegging of USDC stablecoin has significant implications for investors and users who rely on the stablecoin’s stability. It can lead to sudden value changes that are difficult to predict or manage.

The drop in USDC’s price has affected other banks and exchanges, causing concern among investors and users.

Circle’s response to SVB closure

The disclosure of Circle’s inability to withdraw $3.3 billion of its USDC reserves from Silicon Valley Bank had an immediate impact on USDC prices, causing them to drop, as confirmed by data from TradingView.

Circle had initiated a wire transfer to remove its cash from SVB on March 9 due to the bank’s potential closure, despite being insured by the Federal Deposit Insurance Corporation

In a tweet, Circle stated that it would follow guidance provided by state and Federal regulators and called for the continuity of SVB, an important bank in the US economy.

Drop in USDC prices and effects on other banks and exchanges:

The drop in USDC prices has affected other banks and exchanges, causing concern among investors and users.

Silvergate Bank’s announcement that it would “voluntarily liquidate” its assets and Circle’s decision to discontinue ties with the bank also caused concern among investors and users.

The announcement of SVB’s closure caused shares of Signature Bank Holding Corporation (SI) to drop by 12%, and two popular cryptocurrency exchanges, Binance and Coinbase, declared that they would block USDC conversions.

Also Read: How to improve cybersecurity for small businesses.

Conclusion

The depegging of USDC stablecoin has significant implications for investors and users who rely on the stablecoin’s stability. The drop in USDC’s price and the effects on other banks and exchanges have caused

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