Rattled crypto industry could emerge stronger after USDC depeg

USD Coin (USDC), the world’s second-largest stablecoin, has recently faced a depegging from the US dollar, dipping to as low as $0.85, before recovering to $1.00. The USDC had deposited $3.3 billion of its cash reserves with Silicon Valley Bank (SVB), a commercial bank, which faced significant challenges amid rapidly rising interest rates. The depegging has raised questions about the stablecoin model and its long-term consequences, including whether US-based stablecoin will lose ground to Tether (USDT) or whether the depegging indicates fundamental flaws. However, experts suggest that comprehensive banking and stablecoin regulation is the need of the hour. While the USDC may have lost investor confidence in the short term, it may emerge stronger after Circle learns from the treasury management issues. On the other hand, Bitcoin and Ether demonstrated resilience during the banking crisis while some banks and stablecoins faltered. Stability in the long-term for stablecoins depends both on reserves and counterparty risk, as well as investor perceptions. Ultimately, the recent issue may lead to more scrutiny from investors and regulators, delaying the widespread adoption of decentralized financial applications.


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