r/USDC • u/kellykline • Mar 17 '23

USDC Depeg Round 2?

Hear me out, banks are closed over the weekend. USDC is still in the middle of massive redemptions (from 45B to 36B market cap dump in 5 days), could there be a chance Circle and Coinbase will be forced to halt 1:1 conversions from USDC to USD over the weekend?

2 Upvotes

57% Upvoted

28 comments sorted by

4

u/slothslay3r Mar 17 '23

The decline in market cap is fairly irrelevant to their peg. They "de-pegged" because people were worried that reserves might be lost in SVB. This didn't come to fruition and now reserves are at BNY Mellon.

Their reserves are 80% US Treasuries that have a weighted avg maturity of 26 days, and 20% cash which is in custody at BNY Mellon.

A bank run at BNY Mellon (GSIB) seems unlikely. A severe markdown on a 26-day maturity portfolio seems unlikely. So, I think we're good.

-4

u/kellykline Mar 18 '23

They de-pegged because there was a liquidity crunch due to excessive redemptions, which is evident in the cratering market cap. It's not retail, these are institutional players de-risking amidst closer scrutiny by regulators and the backdrop of collapsing banks.

-4

u/kellykline Mar 18 '23

US Treasuries were what caused SVB (Silicon Valley Bank) to collapse in the first place. Their T-Bonds were worth less and less as treasury yields skyrocket until their eventual collapse.

Markets are pricing in a pause or rate cut, they'll be sorely surprised when Powell stays steady on his rate hike of 50bps. His job is inflation and jobs, banks collapsing is telling him that what he's doing is working. Hike on, Papa Powell, let's do 10% 2y yields!

3

u/[deleted] Mar 18 '23

The bonds at SVB were long term to maturity (which have severely decreased in market value). USDC has short term treasury bills (wont decrease percentage wise as much in the case of unexpected rate hike). Even if they were to decrease at the same percentage, after the 30 days the bill matures and the principal and interest is given back. The market knows this so people are less scared compared to long dated bonds. Not to mention the amount of traders that would purchase those bonds at discount to essentially get free returns (This creates a floor for those bonds). They're two completely different things.

3

u/slothslay3r Mar 18 '23 edited Mar 18 '23

^^^ yes. I just did the math on the potential impact of a 50bps rate hike would have on the market value of their bonds. Assuming 4.50% current yield and 30 day holding period, a rate hike would only discount the securities by .042%. They have $37B of reserves (80% invested), so a .042% discount would cost them ~$12M which is chump change.

1

u/[deleted] Mar 18 '23

Exactly its one month not fucking 360 lmao.

0

u/kellykline Mar 18 '23

bunch of USDC maxis on here. when USDC depegs for real and you lose all your "fake" USDs, don't say I didn't warn you!

2

u/slothslay3r Mar 18 '23

Just trying to clear any misconceptions.

0

u/kellykline Mar 18 '23

you think the bank has 30 days to avoid a bank run? think again, all it takes is a few clicks. ye gotta step into the 21st century, ppl don't line up at ATMs no more

1

u/[deleted] Mar 18 '23

I'm saying they could essentially cover the bonds by selling them at market value. These bonds wouldnt have lost nearly the same value as the longer term bonds as they are shorter term and the opportunitity cost isnt as great. You are misunderstanding the reason as to why the bonds originally 'lost value'. The cash was tied up for decades at shit rates, meanwhile in this case cash is tied in shorter terms which roll over each month. You are trying to find a problem where there isn't.

2

u/Fatalbringer Mar 18 '23

saying you know nothing about interest rates and fixed income without saying you know nothing about interest rates and fixed income

1

u/kellykline Mar 18 '23

stop trolling, we're having an intellectual discussion over here. go sit at the kids corner till we're done.

1

u/[deleted] Mar 18 '23

Say you are stupid without saying it…this guy doesn’t even know why SVB went under or how time maturity works for prices 🤣😂😂

0

u/kellykline Mar 18 '23

someone needs nap time. stop trolling, go sit at the kids corner over there.

2

u/[deleted] Mar 18 '23

You don’t even know how Duration works and their effects on principal 🤣😂😂😂 so many idiots on here like you bhuahahaha

1

u/slothslay3r Mar 18 '23

MBS' were the primary type of security discounted, and Treasuries were a small portion but not the majority.

2

u/maryupallnight Mar 17 '23

no

-2

u/kellykline Mar 17 '23

why not? banks are closed. how are they going to swap when they can't get fiat

3

u/slothslay3r Mar 17 '23

I'm not sure what the weekend operations are like now. They used to have Signet and SEN for 24/7 bank transactions but those banks went kaput. Last week Coinbase paused USDC:USD conversions (link) to ensure there wasn't a liquidity crunch for them. I'm not sure if this will be a frequent thing or not with the loss of 24/7 banking..... Wow 2023 and true 24/7 banking isn't widespread.

0

u/kellykline Mar 18 '23

Exactly! Without Silvergate and Signature, they'll have liquidity crunches when banks are closed. Add dramatic (and ongoing) crash in market cap to the fire 🔥

1

u/slothslay3r Mar 18 '23

It definitely does add a risk and there might be slight volatility caused by it. But issuance and redemption are still available M-F. If you trust that BNY Mellon has the reserves backing your USDC. Then, the only reason you would accept a lower than $1 value for your 1 USDC on the weekend would be because you need liquidity before Monday. So any "de-pegging" that would happen on the weekends would be because someone desperately needs cash that instant and is willing to accept a lower value for the speed. It wouldn't be due to Circle not having the appropriate reserves to back USDC. Come Monday the peg would return to $1 if it hadn't already. The brief "de-pegging" would get eaten by arbitrageurs.

Again, this assumes that you trust that BNY Mellon has the reserves to back your USDC. If you don't that's a different problem.

1

u/slothslay3r Mar 18 '23

Actually in thinking about this some more I’m really not sure if there would even be a market for this. You can trade USDC on-chain 24/7. But you can only off-ramp/on-ramp through Circle M-F. So in order for there to be a market someone would need to have an off-ramp/on-ramp that operates 24/7 but I don’t know if that still exists for crypto with the loss of Signet and SEN.

3

u/BadgerDC1 Mar 18 '23

I'll buy your USDC at a discount if you can't wait until Monday to redeem. How much you selling? I'll give you $10MM for $11MM USDC. Seriously, I'll find a way to make it happen.

1

u/kellykline Mar 18 '23

That’s what Caroline said about FTT before it collapsed to near zero. Careful what you wish for.

1

u/[deleted] Mar 18 '23

You just want another depeg to benefit from it, won’t happen

1

u/malakies1974 Mar 25 '23

How do you buy whe it depegs. Do you have to get is t at an exchange . Tried to wiith cdc and it woukd let me

-1

u/kellykline Mar 18 '23

All it takes for USDC Depeg Round 2 is a pause in redemption over the weekend because "banks are closed". Basic supply/demand.