depegging - Pwim.Net

MakerDAO Intends to Depeg DAI from USDC

Announcing through Discord, MakerDAO’s founder Rune Christensen revealed that the DeFi protocol might consider depegging its native token DAI from stablecoin USD Coin (USDC).

Christensen pointed out:

“Will be discussing it at tonight’s call but I think we should seriously consider preparing to depeg from USD … it is almost inevitable that it will happen and it is only realistic to do with huge amounts of preparation.”

This decision might have been reached based on tornado sanctions, given that MakerDAO might replace USDC as collateral with Ethereum (ETH).

Christensen added:

“I have been doing more research into the consequences of the TC sanction and unfortunately it is a lot more serious than I first thought.”

Tornado Cash, a popular crypto mixing platform, was recently slapped with sanctions by the United States Treasury Department based on accusations of facilitating money laundering for hacker groups like the North Korean government-sponsored Lazarus Group, Blockchain.News reported.

MakerDAO’s consideration of jumping on the Ethereum bandwagon was revealed by Yearn.finance core developer Banteg who tweeted:

“MakerDAO is considering a $3.5 billion ETH market buy, converting all USDC from the peg stability module into ETH.”

Therefore, this will mean that Ethereum will back more than half of DAI stablecoins.

Nevertheless, Ethereum founder Vitalik Buterin reiterated that caution was not to be thrown to the wind because this was a risky affair. He stated:

“Errr this seems like a risky and terrible idea. If ETH drops a lot, value of collateral would go way down but CDPs would not get liquidated, so the whole system would risk becoming a fractional reserve.”

The MakerDAO was also not contented with this decision because it deemed it another Terra in the making, given that Terraform made the miscalculation of backing its native token UST with Bitcoin (BTC) as the LUNA crash continued.

Overnight collapse of two traditional banks triggers chaos

On March 11, the financial world was rocked by the sudden collapse of two major traditional banks, Silicon Valley Bank and Signature Bank. This triggered a series of events that impacted millions of businesses, venture capitalists, and bottom-line investors alike. One of the most significant effects of this collapse was the depegging of several stablecoins, including USD Coin (USDC), USDD (USDD), and Dai (DAI), from the U.S. dollar. Circle, the company that issues USDC, announced that $3.3 billion of its $40 billion reserves were stuck in SVB, causing the depegging of the stablecoins.

This news sent shockwaves through the financial community, and many worried about the potential fallout from the collapse of these banks. However, United States President Joe Biden quickly stepped in to reassure taxpayers that they would not feel the burn. The federal government took swift action to protect depositors, ensuring that they would not lose their money as a result of the banks’ collapse.

Biden also made it clear that those responsible for the banks’ collapse would be held accountable. He vowed to investigate the matter thoroughly and take action against anyone found to be responsible. This announcement was welcomed by many in the financial community, who had feared that the collapse of these banks would go unpunished.

The collapse of Silicon Valley Bank and Signature Bank was a significant event in the financial world. These banks were both well-established institutions with many clients and significant assets. The sudden collapse of these banks had far-reaching consequences, and many businesses and individuals suffered losses as a result.

However, the fallout from this event was not limited to those directly impacted by the banks’ collapse. The depegging of stablecoins from the U.S. dollar caused significant disruption in the cryptocurrency market. Stablecoins are widely used as a way to move money quickly and cheaply between different exchanges and platforms. When stablecoins depegged from the U.S. dollar, this caused significant uncertainty and volatility in the cryptocurrency market.

Overall, the collapse of Silicon Valley Bank and Signature Bank was a wake-up call for the financial industry. It highlighted the importance of strong regulation and oversight to prevent such events from happening in the future. While the federal government’s swift action helped to mitigate the damage caused by the banks’ collapse, there is still much work to be done to ensure the stability and resilience of the financial system as a whole.

Depegging of USDC and DAI Saves Borrowers $100 Million

Over the weekend, the depegging of two major stablecoins, USD Coin (USDC) and Dai (DAI), from the US dollar prompted a frenzy of loan repayments on decentralized lending protocols Aave and Compound. Borrowers saved a total of over $100 million in the process.

The depegging was triggered by the collapse of Silicon Valley Bank on March 10, which raised concerns about USDC’s reserves being locked at the bank. This led to the USDC price dropping to lows of $0.87 on March 11. MakerDAO’s stablecoin DAI also de-pegged briefly, going as low as $0.88 on the same day.

According to a report by digital assets data provider Kaiko, more than $2 billion in loan repayments were made on March 11, with more than half of them in USDC. Another $500 million in debts were paid in DAI on the same day. However, repayment activity tapered off as both USDC and DAI started heading back toward their peg.

The depegging of USDC and DAI led to borrowers saving a significant amount of money. Blockchain analytics firm Flipside Crypto estimates that USDC debtors saved $84 million, while those using DAI saved $20.8 million. This is because borrowers were able to pay back their loans while the stablecoins were de-pegged, allowing them to take advantage of the lower prices.

The depegging also had wider implications for the DeFi ecosystem. The Kaiko report noted that the price dislocations generated countless arbitrage opportunities across the ecosystem and highlighted the importance of USDC.

The depegging of USDC also led MakerDAO to reconsider its exposure to the stablecoin, as crypto projects incorporating DAI in their tokenomics suffered losses due to a chain reaction.

However, Circle’s USDC began its climb back to $1 following confirmation from CEO Jeremy Allaire that its reserves were safe and the firm had new banking partners lined up, along with government assurances that depositors of SVB would be made whole. According to CoinGecko data, USDC was sitting at $0.99 at the time of writing.

Overall, the depegging of USDC and DAI from the US dollar resulted in significant loan repayments and savings for borrowers. It also highlighted the importance of stablecoins in the DeFi ecosystem and the need for proper risk management in the use of these assets.

TrueUSD Depegging Linked to Binance Launchpool Activities

On January 18, 2024, TrueUSD (TUSD) blames Binance Launchpool mining activities for the depegging on X. It says,

Regular attestations are ongoing as part of our standard operations, and any claims suggesting otherwise are incorrect. We have observed recent community mining activities associated with Binance Launchpool, which have led to short-term arbitrage opportunities.

The recent depegging of TrueUSD (TUSD) has garnered significant attention in the cryptocurrency community. This event was closely associated with the activities on Binance Launchpool and resulted in TUSD’s value dropping below its $1 peg, reaching as low as $0.97.

On January 15, 2024, a substantial sell-off of TUSD was observed on the cryptocurrency exchange Binance, leading to a notable depegging from the US dollar. Over a 24-hour period, traders sold more than $339.2 million worth of TUSD, compared to $296.8 million in buy orders, resulting in a net outflow of $42.3 million from the exchange.

The situation was exacerbated when TrueUSD experienced issues with real-time attestations of its reserves around January 10, raising concerns about the stablecoin possibly being undercollateralized. These technical difficulties, identified in the API, prevented the provision of accurate U.S. dollar values to its collateral assets. Additionally, on Poloniex, a cryptocurrency exchange, TUSD had been trading at about 8% below its peg for several weeks, while maintaining a relatively steady price around $0.99 on Binance.

Addressing the depegging, the TrueUSD team linked the incident to activities associated with Binance Launchpool. They observed recent community mining activities that led to short-term arbitrage opportunities. Despite concerns, TrueUSD reassured users about the normality of such market dynamics and liquidity adjustments. They emphasized the smooth operation of their redemption channels and the ongoing functionality of TUSD minting and redemption services.

This incident of depegging raises broader questions about the stability and transparency of stablecoins in the crypto market. In June 2023, TrueUSD had temporarily halted its automated attestations due to balance discrepancies. The stablecoin issuer later announced an upgrade in their fiat reserve audit and attestation system in partnership with accounting firm MooreHK. TrueUSD stated that their total assets held in reserve accounts amounted to $1.93 billion.

The recent decline in TUSD’s value coincided with the introduction of a rival stablecoin, FDUSD, into Binance’s staking program. Market analysts speculate that a significant number of investors sold TUSD for FDUSD to participate in Binance’s rewards programs, potentially contributing to TUSD’s de-pegging.

TrueUSD’s depegging highlights the fragility of stablecoins in volatile market conditions and the need for robust mechanisms to maintain pegs to underlying assets. It also underscores the importance of transparency and trust in the management of stablecoin reserves, which are crucial for maintaining investor confidence and the overall stability of the crypto market.