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

by Arthur · March 11, 2023

In response to the extraordinary depegging event of the USD Coin (USDC) stablecoin caused by the collapse of counterpart Silicon Valley Bank (SVB), crypto whales have reported severe losses and appear to have embarked on a series of capital flights 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 totaled >$1 billion in stock and deposits, including myself. I am very upset and it is time to cut the budget.”

Same day, blockchain personality and Tron founder Justin Sun allegedly withdrew 82 million USDC from the decentralized finance (DeFi) protocol, Aave v2, over a series of transactions and exchanged from Dai (DAI). At the time of publication, 82 million USDC is worth $75.26 million.

Speaking of DAI, MakerDAO, the issuer of the stablecoin, filed an emergency protocol on March 11 that, among many items, called for restrictions on minting DAI using USDC to prevent panic selling. MakerDAO is one of the largest holders of the stablecoin, with over 3.1 billion USDC ($2.85 billion) in reserves backing DAI, which was also depegged as a result. Subsequently, crypto projects also incorporate DAI into their tokenomics suffered losses due to a chain reaction.

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

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

“For the USDC to break, it must satisfy three conditions; there is an abundance of deposits at SVB, and three other risky banks, the recovery rate of such deposits remains low, and the USDC cannot reduce such losses.”

Zeng added that his personal opinion is that “there is a low probability of a problem, and even if there is a problem, it will not be as severe as FTX.” Still, the DeFi analyst added that his estimate for the USDC net worth is “$0.885 in extreme situations and $0.985 in normal situations.” At the time of publication, the price of USDC has fallen 8.30% in the last 24 hours to $0.9163.

Alex Svanevik, CEO of blockchain analytics firm Nansen, too commented that Circle and USDC “can handle it.” However, Svanevik also warned that Circle requires “top-notch execution over the next few days,” such as “flawless redemptions,” and no calls for “rescue disclosures.” In another tweet, Svanevik also revealed that a user moved 25 million USDC from the PulseX sacrifice wallet and exchanged it for DAI.