Tuesday, 21 March 2023

Crypto News

Crypto whales suffer huge losses due to USDC depeg, SVB collapse

Crypto whales suffer huge losses due to USDC depeg, SVB collapse

In response to the extraordinary depegging event of the USD Coin stablecoin caused by the collapse of its counterparty Silicon Valley Bank (SVB), crypto whales have reported severe losses and appear to have embarked on a series of capital flight to protect assets. Du Jun, co-founder of cryptocurrency exchange Huobi Global, posted

“[I] dodged, LUNA, dodged 3AC, even dodged FTX [and their collapse], but I couldn’t avoid Silvergate, nor SVB and USDC. Asked a few crypto veterans; losses amounted to >$1 billion in stock and deposits, myself included. I’m very upset, and it’s time to cut down on my budget.”

The same day, blockchain personality and Tron founder Justin Sun reportedly withdrew a total of 82 million USDC from decentralized finance (DeFi) protocol from Aave V2 over a series of transactions and swapped from stablecoin DAI. At the time of publication, 82 million USDC is currently worth $75.26 million. 

Speaking of DAI, Maker Dao, the stablecoin’s issuer, filed an emergency protocol on Mar. 11 that, among many items, called for restrictions on minting DAI using USDC in an effort to prevent panic selling. Maker DAO is one of the largest holders of the stablecoin with over 3.1 billion USDC ($2.85 billion) in reserves collateralizing DAI, which also depegged as a result. Subsequently, crypto projects incorporating DAI in its tokenomics, too, suffered losses due to a chain-reaction. 

Curve Finance, a popular DeFi protocol for trading stablecoins, reported a historic all-time high daily trading volume of $5.67 billion due to the events. In context, the protocol only has a total value locked of $3.77 billion. A few other platforms simply could not handle the sheer volume of trade requests relating to USDC. In one incident, a user received just 0.05 USDT after paying over 2.08 million USDC in a swap that resulted in permanent loss. In an update, KyberSwap, the decentralized exchange responsible for facilitating the swap, said it was “assisting with funds recover,” and is in touch with the user regarding the issue. 

According to Loki Zeng, a prominent DeFi analyst at New Huo Technology, Circle’s reserves are spread between $32.4 billion in treasury instruments, $3.3 billion in deposits at SVB, and $7.8 billion in deposits at other financial institutions. Zeng wrote

“For USDC to go bust, it needs to satisfy three conditions; there is an abundance of deposits on…

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