Rattled crypto industry could emerge stronger after USDC depeg

cointelegraph.com:

USD Coin (USDC), the world’s second-largest stablecoin, may simply have been in the wrong place at the wrong time. 

The place was Silicon Valley Bank (SVB), a commercial bank with $209 billion in assets, where USDC issuer Circle had deposited $3.3 billion of its cash reserves for safekeeping.

The time was the present: one of rapidly rising interest rates in which institutions like SVB, which had long been gathering short-term deposits to buy long-term assets, got whipsawed.

For several harrowing days, USDC lost its peg to the U.S. dollar, sinking to as low as $0.85 (depending on the exchange) before recovering to $1.00 on Monday, March 13. This was the coin that many considered to be the poster child for fiat-based stablecoins, i.e., the most transparent, compliant and frequently audited.

“It’s ironic that what was supposed to be the safest place to put stablecoin reserves caused a depegging,” Timothy Massad, a research fellow at the Kennedy School of Government at Harvard University and former chairman of the United States Commodity Futures Trading Commission (CFTC), told Cointelegraph. “But it was a temporary problem, not an indication of fundamental design weakness,” he added.

Still, a depegging remains a serious affair. “When a stablecoin loses its peg, it defeats the purpose of its existence — to provide stability of value between the crypto and fiat worlds,” Buvaneshwaran Venugopal, assistant professor in the department of finance at the University of Central Florida, told Cointelegraph. A depegging unnerves existing and would-be investors, and it isn’t considered good for crypto adoption.

Some viewed this as an outlier event. After all, the last time a Federal Deposit Insurance Corporation (FDIC)-insured bank as large