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 latter’s repercussions on the market are still visible, another major stablecoin, namely Circle’s USDC, could suffer the same fate. Explanations.
A bankruptcy filed by the insolvency of crypto lending companies?
To understand the potential crisis looming over Circle and the USDC, you have to go back to the company’s partnership with Signature and Silvergate banks. A rumor widely relayed on Twitter states 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 is said to 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 also launched similar offers underwritten by well-known crypto lending companies like Blockfi, Celsius or even 3AC. 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 an inability of Circle to return their dollars to its customers if the latter so require. A withdrawal pressure 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 the FUD qualifier. 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.