The cryptocurrency market has been distant towards stablecoins after what happened to Terra LUNA-UST in May 2022. Now it is feared and some stablecoins are starting to lose their dollar stability again.
Another LUNA crash coming? DeFi experts answer
Experienced crypto researcher and educator @DefiIgnas from Twitter is confident that USD Coin (USDC) will not crash in a LUNA-UST-like fashion. The researcher says the exposure of USD Coin (USDC) reserves to collapsed banking institutions in the US is too low to get the second-largest stablecoin in trouble. Therefore, the worst may have already happened to Circle and its flagship product.
In his recent tweets, @DefiIgnas advised not to exaggerate the similarities between the USDC stablecoin’s problems and the May 2022 collapse of TerraUSD (UST)…
1/ Are you holding USDC in panic mode right now?
Yes, USDC is in trouble, but it's not going to zero like UST.
Circle has already clarified how much cash they have stuck, and the situation might be better than what the market is pricing right now.
— Ignas | DeFi Research (@DefiIgnas) March 11, 2023
The analysis highlighted that only 9% of all USDC’s reserves supporting its circulating supply are stuck in the bankrupt Silicon Valley Bank (SVB), which is about 3.3 billion. But even this money can be recovered sooner or later through bank insurance procedures.
All in all, definitive damage could be under $200 million and does not suggest a dramatic end for USDC. Also, Circle, the company authorized to issue USDC, has enough Short Term U.S. Treasury to cover any potential losses and restore the USDC balance.
Could DAI be in danger?
DAI was one of the first stablecoins to come out after the Terra crash last year. Following the recent developments, MakerDAO, the company behind it, is announcing a contingency plan to protect the DAI stablecoin.
According to an official post on the MakerDAO forum, the company has requested an urgent executive proposal to limit threats to its protocol. DAI fell 8% amid the crisis to hit its all-time low of $0.88.
In light of the USDC crisis that began on March 10, Maker noted that he has a large number of USDC-linked collateral. Currently, DAO has more than 3.1 billion USDC worth of collateral supporting the DAI stablecoin. Maker executives are offering to convert various liquidity providers from USDC to DAI for a start.
If the proposal is approved, the daily mint limit for another stablecoin module called GUSD will be reduced from 50 million DAI to 10 million DAI.
USDC is recovering
While Circle kept some of its USDC reserves in SVB, the second-largest stablecoin lost price stability and fell as low as $0.85 on some spot exchanges. USDC has currently managed to recover up to the $0.94 level. Therefore, it may be an exaggeration to compare the USDC issues with the issues that led to the collapse of the Terra (LUNA) ecosystem a year ago.
As we quoted as Kriptokoin.com, Bitcoin started to recover soon after the Silicon Valley Bank crisis.
56355
