In the cryptocurrency world, stability and reliability are essential for investors to maintain their confidence in the industry. Therefore, the news that Circle is facing the redemption of 10%-30% of its total issuance of potentially $4-12 billion USDC sent shockwaves through the crypto market.
If this data is correct, there is no risk of USDC going bankrupt!
Circle is expected to successfully meet this liberation next week, according to author Loki Zeng, a former researcher at China National Think Tank and Huobi Global. The company has released detailed information, including the fact that Circle’s funds in the SVB are already in transit and should be completed by next Monday under FDIC rules.
However, there is still the possibility that these funds will not be credited. Even then, Circle will only need time to fully recover or partially recover the funds. Also, Circle has the ability to fill the gap and provide a 1:1 trade-off even if the worst-case scenario does happen.
The remaining cash deposits are $5.4 billion in BNY Mellon and $1 billion in Customers Bank. None of this new information is bad news, as BNY Mellon is considered a low-risk bank and Customers Bank is a medium-risk bank. Even if $3.3 billion is lost with SVB in extreme conditions, Circle has the ability to fill the void. If this information is correct, USDC is not at risk of going bankrupt.
What might Circle’s moves be next?
Currently, the market is comfortable with USDC’s price of $0.96. This marks the end of the first phase of the Circle-SVB investment opportunity, which is based on the logic of whether or not USDC has the solvency. The market is always right and the price of USDC has dropped to a reasonable range between $0.895 and $1,000.
cryptocoin.comAs you’ve seen on , market confidence has clearly increased and USDC’s pricing has returned to a reasonable range. However, the $0.04 difference mainly indicates market concerns about the bullish USDC. The main theme of the second round of the game is whether there will be a run in USDC, and if so what? There may be fluctuations in the trend of USDC price, but it’s almost certain what will happen next week. The first inevitable event is that Circle opens its payment channel. This is in line with all the information Circle has published, and the company is capable of providing a 1:1 full payout.
The second reason is that Circle’s liquidity is sufficient to support this move. Even taking into account funds from BNY Mellon and Customers Bank alone, Circle has $6.4 billion in cash and 100% solvency. When there is no funding gap, opening the redemption channel is the fastest way to stabilize altcoin price and remove FUD (fear, uncertainty and doubt).
The second inevitable event is that there will be lots of refunds (or ‘work in USDC’) after the Circle opens the payment channel. This redemption demand includes two aspects: (1) arbitrage opportunities that will exist as long as USDC does not revert to 1U, and (2) investors may be concerned about the systemic risk of USDC and US banks as they wish to exchange USDC for fiat, and hence need to hedge.
What could be the negative and positive effects on crypto?
With Circle opening the redemption channel, USDC holders will have the opportunity to sell. However, the price may not necessarily return to $1.00 as the refund may take some time to complete. Therefore, investors need to make timely decisions to avoid losses. On the other hand, the redemption of USDC could have a negative impact on the crypto industry. The first and most important impact is the potential to rush USDC, resulting in a price drop that could devalue other stablecoins. The second potential impact is regulatory backlash, as the redemption of USDC could attract regulatory scrutiny.
However, the author also mentions that amortization can have positive effects on the industry in the long run. It can help increase the transparency and reliability of stablecoins and reduce the risk of another ‘Black Swan’ event in the future. It could also encourage more investors to become aware of the risks associated with stablecoins and to choose more regulated and safe assets.
In conclusion, while the redemption of USDC can have both positive and negative effects on the crypto industry, it is important to remember that the market is always right. The price of USDC may fluctuate, but as long as Circle can maintain its 1:1 exchange rate, it is unlikely to have a significant impact on the crypto market as a whole. Redemption could lead to increased transparency and reliability of stablecoins, which will benefit the industry as a whole in the future.
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