Circle USDC back from de-pegging, but stablecoin watchers see an uncertain future
Circular-issued USDC’s failure to hold its peg against the US dollar three days ago sent investors fleeing.
Circle has removed around 3.9 billion USDC from its circulating supply since last Friday, with today’s total supply at 39.5 billion USDC, Messari data shows. The Circle continued to mint new coins, increasing circulation, but much fewer than the burned ones.
“It will likely take some time before market participants feel comfortable parking their holdings in any stablecoin for extended periods of time,” Joe DiPasquale, CEO of crypto fund manager BitBull Capital, told CoinDesk in an email.
A report by crypto data firm Kaiko noted that the USDC-USD trading pairs on centralized exchanges (CEXs), which offer real-time dollar rates, pushed daily trading volume to a record high of $600 million on Saturday. In comparison, the daily average trading volume ranged between $20-$40 million last week.
Several of the trades have come on CEXs, which “could not support the influx in selling volume, causing the USDC exchange rate to fall,” Kaiko said.
Meanwhile, decentralized exchanges (DEXs) Uniswap and Curve saw record trading volumes over the weekend amid de-pegging as traders rushed to exchange USDC for Ether (ETH) and Tether (USDT). Curve and Uniswap V3 processed nearly $6 billion in volume of the USDC-USDT pairing, Kaiko’s report showed.
The decoupling of the dollar has also created “countless arbitrage opportunities” in the DeFi ecosystem, with Aave and Compound receiving more than $2 billion in repayments, mostly in USDC, as borrowers repay loans at a discount, according to Kaiko.
Kaiko Research analyst Riyad Carey told CoinDesk via Twitter message that concerns about the USDC will “hang over the markets for a long time.”
He added that while the rush to abandon the USDC is over, “we probably haven’t seen the end of USDC redemptions yet. This is also complicated by the fact that there really isn’t a widely adopted alternative to the USDC, meaning a centralized, DeFi-focused stablecoin.
On Monday, in a weekly newsletter, Jeff Dorman, chief investment officer at digital asset investment firm Arca, wrote that “probably a quarter or half of USDC assets under management” — worth about $10-20 billion — will be redeemed. He also suggested that the USDC could return.
“While the USDC itself is backed by real assets, those assets are held by Circle, Coinbase and a lazy susan of exploding banks,” Dorman wrote. “If the USDC passes this stress test, it will likely grow assets again over time.”
Data provider Coin Metrics wrote in a weekly newsletter that the USDC event has highlighted “the risks posed by over-reliance on centralized infrastructure and will be sure to inform future decisions.”
