Did the Collapse of Silicon Valley Bank Trigger a DeFi Disaster?

1. Depegging of USDC and DAI from USD caused loan repayments, saving borrowers millions of dollars.
2. $2B in loan repayments were made on Aave and Compound, with over half in USDC.
3. MakerDAO reconsidered its exposure to USDC, prompting scrutiny on its reserves.

Over the weekend, the depegging of USD Coin (USDC) and DAI from the US dollar caused borrowers to repay loans and save over $100 million in the process. This depegging occurred after Silicon Valley Bank (SVB) collapsed on March 10, causing the USDC price to drop to $0.87 on March 11 as SVB’s reserves were being locked. MakerDAO’s stablecoin DAI also de-pegged momentarily, dropping to $0.88 on March 11.

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As a result of the depegging, over $2 billion in loan repayments were made on decentralized (DeFi) lending protocols Aave and Compound, with more than half of those repayments made in USDC. This led to numerous arbitrage opportunities across the DeFi ecosystem, according to a report by digital assets data provider Kaiko. The report highlighted the importance of USDC in DeFi markets, which experienced price dislocations for two days.

The depegging of USDC also prompted MakerDAO to reconsider its exposure to USDC as DAI experienced losses in crypto projects that incorporated it into their tokenomics. This chain reaction led to DAI’s depegging and subsequently increased scrutiny on USDC’s reserves.

Despite the turmoil caused by the depegging, the incident showcased the importance of stablecoins in DeFi markets, which rely on stablecoins as a crucial component in their protocols. The incident also emphasized the need for DeFi protocols to have reliable and secure stablecoin alternatives to USDC and DAI.

In other news, HSBC UK Bank plc, a wholly-owned subsidiary of HSBC Holdings plc in the United Kingdom, has acquired Silicon Valley Bank UK Limited (SVB UK) for £1. 

SVB UK is a significant provider of financial services to the technology and life-science industries, with roughly £5.5 billion in loans and £6.7 billion in deposits as of 10 March 2023. For the fiscal year ending December 31, 2022, SVB UK recorded a profit before taxes of £88 million, and its tangible equity is anticipated to be around £1.4 billion.

Read also:

• CZ Warns Traditional Banks Are a Threat to Stablecoins After USDC Depegging
• Waves Dubbed “Next LUNA” After Stablecoin Depegs From $1
• HSBC Acquires Silicon Valley Bank UK for £1, Signaling Major Shift in UK Banking Sector
• Circle Assures $1 Redemption, Reveals USDC Reserves
• Is the Collapse of Silicon Valley Bank Spelling Doom for Stablecoins?