USDC depegged to 0.9 yesterday due to the collapse of its counterparty Silicon Valley Bank, which holds 7.7% of USDC reserves.
While Circle (USDC creator) tries to reassure USDC owners on the redeem of USDC at 1:1 against USD from tomorrow at the opening of banks, it can be worthwhile to think about the impact of a potential USDC crash on crypto. We will start by looking at the impact on the main crypto used for DeFi : Ethereum (ETH).
What will happen to ETH if USDC crashes?
USDC is a stablecoin that is pegged to the US dollar, meaning that the value of one USDC token is meant to remain at $1. Ethereum (ETH), on the other hand, is a cryptocurrency that has a market value that fluctuates based on supply and demand.
If USDC were to crash, meaning that its value were to significantly drop below $1, this could potentially have some impact on the value of ETH. However, the exact impact would depend on a variety of factors, including the reason for the crash and the extent to which USDC is used in the Ethereum ecosystem.
One possible scenario is that if there were a loss of confidence in USDC, investors and users could move their funds into other stablecoins or even into ETH itself, as a way to protect their assets from further losses. This could potentially cause an increase in demand for ETH, and a corresponding increase in its market value.
However, it is also possible that a crash in USDC could lead to a broader loss of confidence in the cryptocurrency market as a whole, which could lead to a decline in the value of many cryptocurrencies, including ETH.
It is worth noting that while USDC is widely used in the Ethereum ecosystem, it is not the only stablecoin used. Other stablecoins, such as Tether (USDT) and DAI, are also used to facilitate transactions and as a store of value. So, even if USDC were to experience a significant drop in value, the impact on the Ethereum ecosystem may not be as severe as it would be if USDC were the only stablecoin being used.
Disclaimer: this article does not contain any financial advice. The information is provided for general informational and educational purposes only.
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