This is the third USDC partner bank to close this week, they only have 4 others left. High interest rates have weakened regular bank liquidity and the swings of stablecoin runs are toppling them like dominoes.
It is clear as day now that Crypto/stablecoins cannot bank in regular US banks and needs its own bank. Crypto is essentially a DDOS attack on a regular bank due to bank liquidity rules in the US. Normal banks are designed to hold a large spread of small accounts and thus keep a limited % of liquidity to cover withdrawal needs which are relatively low % for that type of customer. The rest of the cash is invested and produces a return.
Crypto has huge liquidity demands on small timeframes, especially when there are runs on exchanges. If normal banks are designed to move slowly and carefully to remain good stuarts of their depositors, crypto essentially trips that infrastructure with big swings.
Why compare market cap to volume? It’s apples and oranges. While crypto’s “total worth” is small in the grand scheme of traditional banking, the volume is significant.
It seems that the solution might be stablecoins like USDC implementing a policy that you are guaranteed one USD for every USDC you redeem within a maximum of a few business days, and under normal conditions it will realistically be much, much faster. If you want to expedite the redemption you can do so for a lower redemption rate. The idea would be that this discourages panic runs. A half baked concept as I've described it, but something roughly along these lines should work, I'd think.
> It seems that the solution might be stablecoins like USDC implementing a policy that you are guaranteed one USD for every USDC you redeem within a maximum of a few business days
That is how USDC works. You can redeem USDC for USD 1:1 from any CENTRE Consortium member (Currently Circle and Coinbase).
So a bank collapses because of zero risk management, and over exposure to speculative bubbles with market runs, and your conclusion is that good steward regulations are the problem?
And if the Fed had backstopped Silvergate rather than letting it fail, then SVB wouldn’t have needed the same thing (which did get the bailout). Turtles all the way down
Silvergate is a winddown the same way SVB and Signature will end up being. No one loses their money, even stockholders get some money. It was just more structured
Huh? A bond portfolio always includes a significant amount of short-dated maturities to provide liquidity. SVBs decided to take on much more risk and forego short-maturations for extra yield.
Yield chasing blows up overleveraged entity, nothing new here really, except usually people rightfully criticize the yield chasers/overleveragers for being greedy; this time people are acting like SVB was a victim of the Fed instead of their own extreme incompetence.
There was only a bank run once people worked out they were insolvent. They wouldn’t have been able to survive unless interest rates went back down without much net deposit change in the meantime…
Or would. They lost only <2B so far, maybe they could earn it back, same way as banks make money. It's not like they were married to their bonds assets, they could do a lot of things with those.
Circle was 1% of SVB’s assets. First there was a run on the (traditional, regulated) SVB because VCs caught a whiff of desperation and told all their portfolio companies to exit. Next came the run on USDC because $3 billion was locked inside SVB.
Contagion spreading to non-mega banks because the federal government told them to buy “risk free” treasuries and mortgage backed securities. Rates go up and suddenly if they need cash the bonds must be sold at a loss.
To blame a problem caused by central banking on crypto is absurdity to the highest level.
I've pointed this out a few times in other threads but it's worth repeating.
SVB had just recently reported that they had no liquidity issues and did not foresee any need to sell any of their assets at a loss.
Then Thursday morning the announced that they had, in fact, liquidated some of their assets at a loss.
Your bank is supposed to be zero risk and essentially as good as cash. Any sign that your bank might have liquidity problems significantly raises that risk from 0. In that case it is beyond prudent to try to move out of that bank fast.
I love a good conspiracy theory as much as the next, and wouldn't be surprised if there were ill intentions behind some of those meetings. However this bank run was rational and does not need to be explained away by any conspiracy to organize a bank run.
No "stablecoin" is ever going to actually be stable and fully liquid when there's multiple middlemen with their own agendas between the coin and the eponymous backing.
To me, "FedCoin" implies or suggests an electronic bearer instrument that is issued by the Federal Reserve. It wouldn't be mined, it would be minted and burned (aka created and destroyed). The USD is not currently offered in this format and I don't believe the Fed has any intention of doing so.
So these 'crypto banks' would not be able to make any profits from the assets they are holding? Which would mean they have to charge some fees instead?
It is clear as day now that Crypto/stablecoins cannot bank in regular US banks and needs its own bank. Crypto is essentially a DDOS attack on a regular bank due to bank liquidity rules in the US. Normal banks are designed to hold a large spread of small accounts and thus keep a limited % of liquidity to cover withdrawal needs which are relatively low % for that type of customer. The rest of the cash is invested and produces a return.
Crypto has huge liquidity demands on small timeframes, especially when there are runs on exchanges. If normal banks are designed to move slowly and carefully to remain good stuarts of their depositors, crypto essentially trips that infrastructure with big swings.