Uncle Yu’s blockchain weekly report brings you a summary of the week’s information.
Time: March 6-11
This week’s topic words: Silvergate, SVB, USDC
Big news this week
Silvergate collapse triggers market panic;
Ethereum expansion project Scroll announced the completion of US$50 million in financing;
DeFi insurance provider Nexus Mutual has already paid out approximately $5 million in claims from the FTX and BlockFi bankruptcies and is expected to pay another $2 million;
Powell made several hawkish remarks on March 7, triggering a sharp drop in the market;
The court allowed binance.us to acquire Voyager assets, which led to a sharp rise in VGX;
The Mentougou incident was settled, the compensation process was initiated, and the market began to fall due to the "selling panic";
Tencent's digital collection platform Huanhe announced its delisting;
HT Token was spiked on the Huobi platform, causing many long positions to be liquidated. Sun Ge said he would compensate users.
Silicon Valley Bank is at risk of a run, and the sharp drop in U.S. stocks has triggered a sharp drop in the crypto market;
New York State regulator sues KuCoin;
Silicon Valley Bank went bankrupt and was taken over by the Federal Deposit Insurance Corporation;
Circle has a risk exposure of $3.3 billion to Silicon Valley Bank, which has caused USDC to decouple;
A large amount of DAI collateral is USDC, and as a result, DAI also experienced decoupling.
Uncle Yu's Market View
When I look back at the major events that happened this week, I can't help but sigh, "I haven't seen such an exciting market in a long time." Usually, the news of a week will be a mix of bullish and bearish, but this week it was basically all bad news.
Last week, when everyone was worried about Silvergate, another larger bank, Silicon Valley Bank (SVB), suffered a run and went into bankruptcy liquidation within 48 hours, and was subsequently taken over by the Federal Deposit Insurance Corporation. This plot can't help but remind everyone of the financial crisis in 2008, when interest rate hikes burst the bubble and many large banks went bankrupt one after another and were finally taken over by the government, but this time there was no struggle and the liquidation was faster.
Compared to the collapse of Silvergate, the bankruptcy of Silicon Valley Bank will have a more far-reaching impact.
1. Why did SVB go bankrupt?
The fundamental reason is insufficient liquidity. There is not enough cash left to cope with user withdrawals, which leads to the need to sell some positions for money.
Because we are currently in a cycle of interest rate hikes, many government bonds are actually in a loss-making state. This loss is only a book loss. As long as the position is not closed, there is a chance to turn the situation around. However, in order to raise funds to meet withdrawal needs, SVB sold US$21 billion in bonds, resulting in a loss of US$1.8 billion. Doesn't it sound like you who are forced to cut losses?
2. SVB’s impact on the crypto market
After the SVB incident, several project parties issued statements stating that they had no risk exposure. After all, SVB is the favorite bank for Silicon Valley entrepreneurs, and many investors often deposit money there, including Circle, the issuer of USDC.
According to a statement released by Circle, it has a risk exposure of US$3.3 billion to SVB, accounting for about 10% of its reserves. Affected by this, USDC began to decouple from the anchor to 0.94, and several projects also expressed their intention to suspend their support for USDC.
The risk of USDC's decoupling was passed on to DAI. As a decentralized stablecoin, DAI uses a large amount of USDC as collateral, which caused DAI to begin to decoupling.
3. Possible future trends
The U.S. Federal Deposit Insurance Corporation will compensate Circle, but it is estimated that the $3.3 billion cannot be fully repaid. However, the risk will not be too great, and USDC will only be temporarily decoupled.
The Fed's pace of interest rate hikes may slow down further, as the already fragile economic system cannot withstand the tone of strong interest rate hikes.