Will USD Coin (USDC) Collapse?

USD Coin’s (USDC) problems are exposing the lie behind stablecoins. The lie is that stablecoins contain fiat currencies such as dollars.

For example, many people think US Dollars back USD Coin. In reality, stablecoins contain a payment mechanism (a smart contract) that makes payment in fiat currency when you spend the stablecoin. For instance, USD Coin makes payment in US dollars from bank accounts when spent.

Thus, stablecoins can become worthless if the smart contract cannot make a payment. Crytpo journalists call this fear losing the peg. The peg is the stablecoin’s ability to make fiat currency payments. Fears that could happen can destroy USD Coin.

How Silicon Valley Bank’s Collapse can Destroy USD Coin

To explain, Circle, USD Coin’s owner, kept $3.3 billion of its cash reserves in Silicon Valley Bank. Silicon Valley Bank collapsed on 10 March 2023.

Frighteningly, news reports allege many Silicon Valley Bank accounts are uninsured. For example, Roku (ROKU) admits 26% of its cash is in uninsured Silicon Valley accounts, Endgadget reports.

The California Department of Financial Protection closed Silicon Valley Bank and appointed the FDIC as receiver of its assets on 12 March 2022. Speculators feared Circle could not cover USD Coin payments because of the Silicon Valley Bank collapse. Endgadget claims USD Coin’s price fell to 87₵ on 10 March 2023.

Normally, the FDIC only insures $250,000 in bank accounts. However, the Biden administration announced the U.S. Treasury Department and the Federal Reserve, will backstop all Silicon Valley Bank deposits regardless of any amount, The Washington Post reports. Extraordinarily, they made the announcement late on Sunday 12 March 2023.

Hence, depositors, such as Circle, had access to all their money on 13 March 2023. Thus, Circle has access to all the money it needs to make USD Coin (USDC) payments.

A bank collapse threatens USD Coin because stablecoins resemble checking accounts. To explain, checks bounce if the checking…