The USDC’s fall to $0.9 dragged other stablecoins into the market with it. We attempt to explain this contagion, while Tether’s USDT appears to be benefiting from investor confidence.
USDC drags other stablecoins with it
With the USDC’s current loss of dollar peg, other stablecoins in the market are currently in the red. Indeed, if we currently refer to CoinGecko’s top10, only USDT, BUSD and TUSD can boast of being at parity, or at least almost:
Figure 1 – Top10 stablecoins by capitalization
Although we have already returned this morning to the case of the DAI by dealing with the consequences of this depeg for decentralized finance (DeFi), other stablecoins are also suffering from this wave of panic.
In order of capitalization, we can stop on the case of the FRAX among these notable falls. FRAX works in a hybrid way, combining algorithmic technology with collateralization. A portion of these reserves being from the USDCthis was enough to trigger investors’ risk aversion, and shake up the price of the stablecoin, so that the FRAX is also trading at around $0.9.
On the decentralized exchange (DEX) Curve (CRV), while the FRAX/USDC liquidity pool benefits from a relative balance, this is no longer the case for the FRAX/DAI/USDC/USDT pool. And for good reason, out of a total value locked (TVL) of almost $424 million, it is almost 89% represented by this stablecoinwhich has a strong impact on its liquidity:
Figure 2 – FRAX pool status on Curve
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The curious case of USDD and the resilience of USDT
Of all the struggling stablecoins, the USDD of the Tron ecosystem (TRX) also suffers a noticeable loss of peg : $0.953.
Yet, according to the official reserves, the collateralization of this stablecoin only counts 0.16% USDC. This therefore testifies to the psychological state in which the market currently finds itself in the face of this crisis:
Figure 3 – USDD Collateralization
For its part, Tether’s USDT is benefiting from the crisis, as liquidity flows into the stablecoin. We should also note that, in the same way as Paxos, Tether said it has no exposure to Silicon Valley Bank (SVB):
#tether doesn’t have any exposure to SVB
— Paolo Ardoino 🍐 (@paoloardoino) March 10, 2023
However, it should be noted that if in these audit reports, Circle specifies the names of the banking establishments with which its reserves are located, this is a priori not the case of Tether.
Either way, the market is currently in a state of panic, with overreactions to publicly available information: nearly 9% of Circle’s reserves are tied up at SVB. This therefore justifies the current price of USDC, but does not fully explain the contagion to all other stablecoins on a fundamental level.
However, it will be advisable to remain cautious, and not to take unnecessary risks. Indeed, the market has already shown us several times in the space of a year that “impossible events” could occur. Nevertheless, it’s a safe bet that this crisis will be rich in lessons and that it will allow the ecosystem to grow out of it once the storm has passed.
👉 Also in the news – Why did the USDC lose its peg to the dollar overnight?
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Sources: CoinGecko, Curve, USDD
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I timidly discovered the world of blockchain at the end of 2018 during my quest for financial freedom. Initially invested moderately, it was only two years later that I took the gamble of betting everything on the movement that was taking shape then. I then dedicate 2021 to training myself better to acquire more knowledge and seriousness. As I often like to say: I still have a billion things to learn. And what I do know, I want to share with you.
Vincent Mayor
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