by • USDC depegging has increased concerns over the volatility of stablecoins, according to Moody’s Investors Service.
• The depegging was caused by the collapse of Silicon Valley Bank on March 10th, leading to $3.3 billion in assets being tied up in the bank.
• As a result, calls for regulation of stablecoins have grown louder.
Moody’s: USDC Depeg Could Hinder Stablecoin Growth
Moody’s Investors Service has warned that USD Coin (USDC) losing its peg could negatively affect stablecoin adoption and increase calls for regulation. According to their latest “Sector Comment” report released on March 16th, fiat-backed stablecoins may face new resistance following USDC’s depegging on March 10th.
Implications of USDC Depeg
The analysts from Moody’s wrote that financial institutions may reconsider adopting stablecoins due to concerns regarding their potential volatility. This comes after the sudden collapse of Silicon Valley Bank which caused approximately $3 billion in USDC redemptions as its value fell to around $0.87 per coin. By close of U.S banking operations on March 15th, Circle had cleared substantially all of the backlog of minting and redemption requests for USDC – reassuring customers who had temporarily lost funds during this period.
Regulatory Calls Grow Louder
As a result, recent events have highlighted how reliance on off-chain financial institutions can limit stability and increase regulatory scrutiny towards fiat-backed stablecoins such as USDC – prompting fresh calls for regulation within the sector as a whole.
Circle CEO Reassures Customers
Circle Internet Financial CEO Jeremy Allaire reassured customers that they could now fully access their reserves held at Silicon Valley Bank following the Federal Deposit Insurance Corporation’s announcement that it would backstop all deposits held at the bank once again – allowing them to regain its original peg value almost immediately after the incident occurred.
Conclusion
Overall, while it remains unclear what long term implications this event will have for fiat-backed stable coins such as USDC, recent turmoil in traditional banking has shown just how important it is for companies operating within this space to ensure proper safety measures are put into place when dealing with off-chain financial institutions if they want to maintain any kind of stability going forward into the future
