The destabilization of the USDC stablecoin has had a ripple effect on other stablecoins, causing chaos in the crypto industry.
This sudden depegging of the USD Coin was triggered by the failure of its counterparty, Silicon Valley Bank (SVB). As a result, large investors in the industry have suffered significant losses and have started to move their assets elsewhere to protect their investments.
Speaking about the depegging, the co-founder of cryptocurrency exchange Huobi Global, Du Jun, wrote:
“[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 amounted to >$1 billion in stock and deposits, myself included. I’m very upset, and it’s time to cut down on my budget.”
On the same day, Tron founder, Justin Sun, withdrew 82 million USDC from the decentralized finance (DeFi) protocol, Aave v2, and converted it into Dai through a series of transactions, with the total value of 82 million USDC reaching $75.26 million. However, MakerDAO, the issuer of Dai, filed an emergency protocol on March 11, which included measures to restrict the minting of Dai using USDC to prevent panic selling.
The events resulted in a historic all-time high daily trading volume of $5.67 billion for Curve Finance, a popular DeFi protocol for trading stablecoins, despite its total value locked being only $3.77 billion. However, some other platforms were unable to cope with the huge volume of trade requests related to USDC.
In one case, a user lost a significant amount of funds in a swap that resulted in a permanent loss. The decentralized exchange responsible for the swap, KyberSwap, has stated that it is assisting with funds recovery and is in touch with the affected user.