Stablecoins are going through particularly difficult times. They are equally in the sights of financial regulators since the collapse of the UST last May. While the repercussions of the latter on the market are still visible, another major stablecoin, namely Circle’s USDC, could suffer the same fate. Explanations.
A bankruptcy triggered by the insolvency of crypto lending companies?
To understand the potential crisis that awaits Circle and the USDC, we must go back to the partnership of the company with the banks Signature and Silvergate. A rumor widely relayed on Twitter suggests in particular that it paid an interest rate of 5% to the latter to systematically convert the dollars deposited by its clients into USDC. The operation would have already cost Circle $500 million. Alongside this deal, Signature and Silvergate have launched loan offerings around USDC to earn returns to benefit the capitalization of the stablecoin.
Circle has also launched similar offers to which well-known crypto lending companies such as Blockfi, Celsius and 3AC have subscribed. However, the recent liquidity problems of the latter put Circle in an uncomfortable situation reminiscent of that of Terra a few months ago. Indeed, their insolvency could be followed by an inability of Circle to return their dollars to its customers if the latter demanded it. Withdrawal pressure exerted on the company would then result in the collapse of the USDC under such conditions.
With the crypto community more receptive to the scenario outlined above, Circle CEO Jeremy Allaire quickly stepped up to call it FUD. His company recently shared information about the stablecoin’s reserves and its custodians for transparency reasons. This release was unfortunately not enough to allay the fears of the crypto community on Twitter.
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Luc Jose Adjinacou
Far from having dampened my enthusiasm, an unsuccessful investment in a cryptocurrency in 2017 only increased my enthusiasm. I therefore resolved to study and understand the blockchain and its many uses and to relay with my pen information relating to this ecosystem.