USDC recovering from brief de-peg, but losing market share to other greenbacks

The Silicon Valley Bank (SVB) collapsed and was taken over by federal regulators last Friday, March 11. Within the next few hours, several tech and finance companies came out and declared their exposure to the downed banking giant. One of these firms was Circle, the issuer of the second-largest stablecoin by market capitalisation, USD Coin (USDC).

Circle revealed that 20 percent of USDC’s $40 billion cash reserves were held at SVB. The firm also stated that its attempts to withdraw these holdings, which amounted to a whopping $3.3 billion, had failed. This created massive fear, uncertainty and doubt (FUD) around USDC. Investors went on a bank run, causing USDC to lose its $1 valuation and drop to $0.88 on March 11, according to data from CoinMarketCap.

USDC was not alone; several other stablecoins, along with the broader crypto market, also declined rapidly after SVB shuttered operations. Fortunately, a couple of days later, federal regulators announced that all SVB depositors would be allowed to withdraw their funds on March 13. This mitigated most of the FUD around the bank’s sudden collapse, and a majority of cryptos, including USDC, bounced back in the following days.

At the time of writing, USDC was still recovering from its brief de-peg and was trading at $0.999, which is just a fraction below its normal $1 valuation. However, fears around the coin’s future lingered on, causing investors to explore other, seemingly secure options. This has resulted in an exodus of sorts, with USDC holders jumping ship and turning to alternate greenbacks.

Here are some of the other stablecoins pegged to the U.S. dollar that have seen their market share increase after the FUD around USDC.

TrueUSD (TUSD) is an Ethereum-based stablecoin that’s pegged to the U.S. dollar. The coin’s circulating supply is backed by an equal amount of cash reserves, which are stored in several third-party bank accounts. All these third parties also provide a monthly audit of their holdings, creating transparency around TUSD’s reserves. This could be one of the reasons why the coin touts itself as the "first regulated stablecoin fully backed by the US Dollar".

As such, TUSD was an ideal, and secure option for spooked USDC holders. Several investors swapped their USDC for TUSD in the days following SVB’s downfall. As a result, the coin’s market cap grew from around $968 million on March 10 to around $2.09 billion on March 13.

Moreover, the coin also saw a spike in its market cap earlier in Feb, when the U.S. Securities Exchange Commission (SEC) cracked down on Binance USD (BUSD). This caused Binance, the world’s largest crypto exchange, to mint $180 million worth of TUSD on February 27. Therefore, in all, TUSD has seen its market cap grow from $755 million on January 1 to $2.03 billion at the time of writing. That equates to a 168 percent spike in its market cap since the start of the year.

DAI is the fourth-largest stablecoin in the market. It is issued by MakerDAO, one of the oldest decentralised finance (DeFi) projects in existence. Unlike the other greenbacks on this list, DAI is not backed by fiat reserves. Instead, it uses reserves of USDC, ether (ETH), Wrapped Bitcoin (WBTC) and other Ethereum-based cryptocurrencies to maintain its $1 valuation.

Owing to its association with USDC, DAI also experienced a brief de-peg after the SVB collapse. The stablecoin dropped to $0.897 on March 11 after federal regulators shuttered SVB. However, it has recovered significant ground since then and was trading at $0.9987 at the time of writing.

Moreover, since it is run by a decentralized autonomous organization (DAO) rather than a single company, investors find it easier to put their trust in DAI. As such, when USDC holders began fleeing to other stablecoins, DAI quickly emerged as a viable alternative. This resulted in the stablecoin’s market share catapulting nearly 21 percent over the last few days, jumping from $5.10 billion on March 11 to $6.17 billion at the time of writing.

Tether has been the leading stablecoin by market capitalisation for a while now. It is a traditional greenback, with cash reserves to back every coin in circulation. The firm has also appointed a prominent auditing firm, BDO Italia, to provide regular attestation reports for USDT’s cash reserves. Moreover, after the collapse of SVB and Signature bank, Tether’s CEO, Paulo Ardoino, took to Twitter to announce that the coin had zero exposure to either entity.

Perhaps this reinforced the coin’s image as a secure alternative to USDC. As such, Tether’s market cap has seen a sharp uptick over the last few days, jumping from $71.76 billion on March 10 to $73.76 billion at the time of writing. As a result, USDT has cemented its place as the top stablecoin, with more than 55 percent of the $134 billion stablecoin market cap.

USDC’s downfall has been advantageous for the other leading greenbacks. However, despite its outflows, USDC still retains the number 2 spot among the top 100 stablecoins in the market. It currently commands a market capitalisation of $38 billion, which is nearly 4 times that of its next competitor, Binance USD.

However, looking upwards, the gap between USDC and its biggest competitor, USDT, has widened further. Therefore, any chance of USD Coin overtaking Tether seems quite distant, even though it was beginning to look possible in mid-2022. Also, whether USDC will recover its market share or continue to lose out to its competitors over the coming months, remains to be seen.