The second-largest stablecoin by market capitalization, USDC, is accused of being on the verge of collapse as the company behind it has been consistently losing money and Circle is hiding its inner turmoil.
As we all know, in a recent article CoinCu reported that hedge funds are “trying” to short USDT. Hundreds of millions of dollars in shorts are made with the intention of perhaps bringing down USDT or at least reducing its leadership position. Soon after, USDC was selected as the next “victim” to suffer from the community’s attack because it is the second-largest stablecoin in supply on the market up to now.
A diagram posted on Twitter by Geralt Davidson shows some anomalies in the operating model of Circle (the organization behind USDC and Euro Coin).
According to this account’s share, Circle’s USDC plan is on the verge of collapse because the company has been continuously losing money and there are many doubts that there is something wrong that Circle is trying to hide from users. Here are some of the uncertainties that this account brings up.
First, Circle lost money to pump USDC’s market capitalization. Circle pays a higher rate than what Signature and Silvergate typically do when depositing cash. This would suggest that Signature and Silvergate customers could convert their own dollars into USDC for a higher yield.
Second, USDC reserves are invested in Signet & SEN. Every dollar deposited (deposited) into Signature or Silvergate is automatically converted to USDC and they can use them to lend. Since they are banks, they can leverage their reserves and convert them to reserves at different rates or periods. Circle also used a company in Bermuda to provide a USDC lending facility to avoid US Government control.
Geralt Davidson’s tweet above has attracted the attention of many people and caused many conflicting views. A Twitter account named Justin Charlton that this person’s argument about the mechanism of USDC is somewhat inaccurate or intentionally distorted. The purpose of this could be to trigger a wave of FUD in the same way that USDT has been treated in the past.
Even FatManTerra thinks these are very small numbers.
For example, on the issue of leasing USDC reserves, what is shown in the chart above is somewhat inconsistent with the reality of the banking mechanism. Banks do not increase reserves. They only raise capital and deposits are not part of the bank’s capital.
Or where a bank is forced to liquidate its long-term assets at a lower price to pay for its short-term liabilities, it may become insolvent. However, in reality, they are strictly regulated on lending levels to prevent that and it seems very unlikely.
After all, we all know that no asset is without risk, even heavily collateralized stablecoins. Therefore, the best way to be safe in this market is to diversify your own portfolio.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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