I don’t give a shit if USDC goes to zero.
But let’s be real, USDC is going to be fine
Discussion
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Hm. My cursory thoughts are: who's behind it propping it up, providing liquidity and what type of liquidity, and how do we know?
Luna was backed by essentially nothing. A bit of BTC and their own token.
FTX had a LOT of institutional backers and investors. Deep pockets. Celebs, pension funds etc. And it totally collapsed. They all let it collapse rather than triage it.
USDC -> Coinbase -> ARKK -> ?
Maybe they survive this round. But if the markets tank fast and exit liquidity is fast... Then there could be trouble akin to the previous examples.
What else should I know?
I don’t know much about it to be honest, but here’s my thinking.
Some USDC reserves were at SVB. SVB went under, so now people are panic dumping USDC.
But SVB is an FDIC insured bank that’s just going to be acquired by a bigger bank. Once people realize this, panic stops and USDC returns to $1
Ohhh. Next question is what's FDIC and why would a bank want to absorb a broke banks debt etc? They might structure a deal to take SOME of the debt with the customers and assets, but seems like a raw deal.
The legacy financial system has so many flaws. Wow.
SVB had a number of assets that performed poorly recently and led to their demise.
A bigger bank will acquire SVB to get those assets at a discount. They also get the clients and associated revenue from their loans (I think).
Here’s FDIC: https://en.m.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation
FDIC only covers the first 250k for each customer. That 3b is gone, Once the run begins it goes to zero since nobody wants to be the last 10% who get nothing. (withdrawing from USDC parent company itself you're promised $1) which is why Coinbase stopped redemptions.
Coinbase stopped redemptions because SVB is not operational this weekend while the FDIC takes over.
FDIC will cover the 250k, and another bank will acquire SVB and resume operations
TBD.
The bank doesn't have a full reserve of assets. So there's a gap somewhere. The 'hold to maturity' value isn't real. They won't get that much, and so there's not enough value on the books to pay all depositors.
Nobody is just going to walk in and say sure, you get 100% of your money.
Uninsured Depositors are gonna get a haircut. How does USDC parent company cover that hole? Do they get a loan from someone? Maybe, maybe there's a run first thing Monday and they have no time for that.
I mean 1) how sure are you that all of USDC’s reserves are at SVB?
2) Banks make money off depositors. Buying all of SVB’s assets at a discount should be pretty appealing for a big bank. And a big bank can easily make everyone whole
Not all, 10% of reserves. Once the run starts, no one wants to be the last 10% of people, cause that money doesn't exist.
I'm no expert, but it seems like the math is pretty simple, but banking is complicated and you may be right.
The way I see it, the bank is in FDIC custody because it's real reserves at market prices minus its liabilities (depositors money) is negative. There's no rescue from that. The bankruptcy court will sell its assets and distribute those to secured creditors and such and the uninsured depositors will get a haircut.