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Comment by nikanj | Hacker News Reader

If Circle is healthy they can make tons of money buying USDC at a discount.

The fact they’re not doing it should tell you how solvent they are. Buying their own coin is a guaranteed 10% instant profit, why are they not moving?

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Isn't it even their duty to buy it?

I don't know how USDC is set up. But I thought stablecoins work like this: The creator sells their coins at $1.01, so it will never go beyond $1.01 as it would be cheaper to by from the creator. They buy their coin at $0.99. So it will never go below $0.99 as it would be better to sell to the creator.

Yes, presumably redemptions will remain open come Monday. As far as I know Circle creates and redeems at par, they don't charge 100bps or whatever.

If they buy and sell at $1, how do they finance their operation?

They buy treasuries and collect 4.5% on $40 billion.

That is definitely not how USDC is set up. The creator takes 1 USD, and gives back 1 USDC and vice versa. In this case, some of the USD held at SVB disappeared, so Circle has less money for the USDC -> USD redemptions. There needs to be a 1:1 backing, otherwise a stable coin is just smoke and mirrors.

    creator takes 1 USD, and gives back 1 USDC and vice versa

How do they make money then?

Transaction fees I think?

They invest the USD. If the investments work out, they keep the profits. If they don’t, the customers just got crypto’d

Short term treasuries. They're a liquidity provider for the US government.

This makes no sense. Circle's holdings are backing USDC. They can't use the money backing other USDC to buy more USDC. That's just market manipulation.

That's the whole point of a peg. If your thing goes below the pegged value, use your other assets to buy until your thing reaches pegged value (and vice versa). That's what "backed" means.

You are confusing a "peg" with "backed"

Circle have $1 which you can redeem each USDC for.

They don't theoretically have extra cash lying around to buy USDC at discount, and they certainly can't use reserves for that (they are needed to serve withdrawals)

Hopefully they do have some corporate cash spare to buy up cheap USDC so that what they lose to SVB doesn't make them insolvent

They should be able to buy 1 USDC with $0.9 of reserve, destroy it, and have $0.1 left over in profit, no?

I fail to see the difference, note that the title mentions "depegs". If they buy 1 USDC at $0.9 with their reserves, they can remove the USDC, and keep $0.1 since they'll need $1 less reserve. How is this fundamentally different from a peg? This is exactly why nations with pegged currencies keep foreign cash reserves.

Backed only implies that the stablecoin creator can redeem 1-1. It doesn't imply anything about whether the creator takes actions on the open market to try and manipulate the price to be at par.

Great point. What could another reason be for not doing so?

That right now they don’t have enough cash to buy them, because the cash is locked in an SVB account.

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