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In response to the extraordinary depegging event of the USD Coin (USDC) stablecoin caused by the collapse of its counterparty Silicon Valley Bank (SVB), crypto whales have reported severe losses and appear to have embarked on a series of capital flights to protect assets. Du Jun, the co-founder of cryptocurrency exchange Huobi Global, posted: 

“[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.“

The same day, blockchain personality and Tron founder Justin Sun reportedly withdrew 82 million USDC from the decentralized finance (DeFi) protocol, Aave v2, over a series of transactions and swapped from Dai (DAI). At the time of publication, 82 million USDC is worth $75.26 million. 

Speaking of DAI, MakerDAO, the stablecoin’s issuer, filed an emergency protocol on March 11 that, among many items, called for restrictions on minting DAI using USDC to prevent panic selling. MakerDAO is one of the largest holders of the stablecoin, with over 3.1 billion USDC ($2.85 billion) in reserves collateralizing DAI, which also depegged as a result. Subsequently, crypto projects incorporating DAI in their tokenomics also suffered losses due to a chain reaction. 

Curve Finance, a popular DeFi protocol for trading stablecoins, reported a historic all-time high daily trading volume of $5.67 billion due to the events. In context, the protocol only has a total value locked of $3.77 billion. A few other platforms simply could not handle the sheer volume of trade requests relating to USDC. In one incident, a user received just 0.05 Tether (USDT) after paying over 2.08 million USDC in a swap that resulted in a permanent loss. In an update, KyberSwap, the decentralized exchange responsible for facilitating the swap, said it was “assisting with funds recovery” and is in touch with the user regarding the issue. 

According to Loki Zeng, a prominent DeFi analyst at New Huo Technology, Circle’s reserves are spread among $32.4 billion in treasury instruments, $3.3 billion in deposits at SVB, and $7.8 billion in deposits at other financial institutions. Zeng wrote:

“For USDC to go bust, it needs to satisfy three conditions; there is an abundance of deposits on SVB, and three other at-risk banks, the recovery rate for such deposits remains low, and USDC cannot mitigate such losses.“

Zeng added that his personal opinion is that “there is a low probability of an issue, and even if there is an issue, it won’t be as severe as FTX.“ Nevertheless, the DeFi analyst added that his estimate for the net value of USDC is “$0.885 at extreme situation and $0.985 at normal situation.“ At the time of publication, the price of USDC has fallen 8.30% in the past 24 hours to $0.9163.

Alex Svanevik, CEO of blockchain analytics firm Nansen, also commented that Circle and USDC “can make it.“ However, Svanevik also warned that Circle requires “top-class execution over the next few days,” such as “flawless redemptions,“ and no calls for “bailouts publicity.“ In another tweet, Svanevik also revealed that a user moved 25 million USDC from their PulseX sacrifice wallet and exchanged it for DAI.