In the last few days, USDC and DAI got de-pegged. With those two being top stablecoins, this raises a lot of concerns in the crypto world. In this article, I will talk about the current situation & its implications if they were to de-peg further.
What caused the de-peg?
As you might know by now, the popular crypto bank, silvergate, closed down. Unfortunately, USDC had 3.3 billion USD in reserves in silvergate and does not have access to the funds right now. This caused investors to be worried and they sold most of their USDC, thus causing a -8% de-peg. The de-peg is the largest USDC has ever experienced. However, I do believe that USDC will eventually regain its peg in the following days.
If USDC and DAI de-pegs further, what will happen?
Because USDC is the second largest stablecoin, this would probably mean the end of crypto or a delay for 2 years in the crypto space. Seriously. Since USDC backs most tokens, if it goes, crypto goes with it. This, however, is very unlikely to occur.
The prices for USDC and DAI are already beginning to re-peg to the US dollar again.
Will USDC and DAI re-peg to USD?
Yes, because USDC and DAI is not like UST. USDC is backed by actual reserves and the current de-peg was caused by only 10% of the cash reserves to be locked up at silvergate. If Circle manages to burn enough USDC and regain some of the funds at silvergate, it will theoretically return to its original price once again.
The USDC and DAI de-pegging of the US dollar definitely has caused a lot of fear in stablecoins. Even though USDC will most likely make a return, this makes things even tighter with the trust in stablecoins.