Can one short USDC with leverage?
[1] which it isn’t; here’s what legit attempts at explanation look like: https://news.ycombinator.com/item?id=35113400
https://news.ycombinator.com/item?id=35113126
[2] if it weren’t, it would explained some of the terminology used, since the asker clearly isn’t deep in the business in the first place
https://www.binance.com/en/support/announcement/binance-adds...
Individuals in many countries (but not the USA) have access to Leverage Trading on Binance.
You could also use any of the following DeFi liquidity pools: https://nomics.com/markets/usdt-tether/usdc-usd-coin/markets
SVB went bankrupt - as a business: it can't pay its bills. People are reacting to this as if the deposits have vanished entirely.
If you think USDC is a shorting opportunity, short anything crypto. USDC is literally the second largest domino.
EDIT - Do you have a the $60+ billion figure? All I am seeing is a $2 billion dollar shortfall.
If the internet failed, all crypto would fail. Does that make it the biggest domino in crypto?
But isn't this the problem?
If over the weekend billions of dollars of USDC is purchased at less that $1 from people expecting to cash in on "free money" come Monday, Circle is going to have to be able to ensure that that actually happens, which could easily require more liquidity than remotely possible (edit: I just realized that Circle claims that back 1-to-1 with liquid assets).
Volume right now in USDC is at record highs. If all of those people are hoping to make free money on Monday, and it turns out Circle is unable to maintain that, then the entire USDC will crash almost instantly once people realize it's impossible to keep it pegged.
I'm far from a crypto expert so could you clarify what I'm missing?
It doesn't matter if it was already $1 right now. The assumption is that everyone purchasing USDC today when it was below $1 is planning on selling it Monday as a quick arbitrage.
Assuming the peg is restored by Monday, Circle is still going to have to have a lot of liquidity to meet the demands of a huge number of people trying to realize that $1. Again, today was the highest volume ever for USDC and presumably many of those transactions are people expecting to cash out Monday.
It seems very possible to me, that Circle will not be able to meet the liquidity demands of keeping the peg and fulfilling their promise of $1 USD for 1 USDC. If they falter at all, and the peg doesn't hold, then anyone holding will immediately panic and attempt to liquidate their position leading to a collapse.
The piece of the puzzle I was missing is that I didn't realize that Circle claims that they have cash reserves (cash and 30-day treasuries) equal to the entire USDC market cap. So anyone who trusts that Circle has the liquidity and cash on hand to payout everything views this as free money.
I would point out that this "arbitrage" existing for more than a brief moment implies there are lots of people who do not believe that Circle can meet these demands and are happily unloading their positions.
I thought 1 new coin is created for each new $1
However, another important question is what actually happens to that dollar - are they actually able to wire you that dollar if you hand them back 1 USDC? For 3.3bn of those dollars, we know they are not currently able to, since those 3.3bn are tied up in SVB, which isn't itself able to wire them to anyone. Hopefully, the rest of the them are more available, but it remains to be seen.
Circle can only redeem during bank hours, so almost everybody involved maintains a buffer of easily accessible dollars to paper over. However in any sort of stressful time these buffers get used up. With no buffer to satisfy the 1USDC=1Dollar, redemptions stop until bank hours and there's no arbitrage opportunity.
For the most part nobody really cares if one of these buffers gets used up because you'll just hold USDC inventory for size. But when the solvency of USDC is in question, nobody wants to hold USDC inventory, and so there's no buying pressure for USDC below $1.
Another factor is that even if you think the USDC fair is .97, not .92, buying below .97 isn't necessarily a good trade. You might be last in line to do a 1-1 redemption, and by that time, the hole isn't $1bn on $40bn but $1bn on $5bn.
My understanding was that the entire point of a stablecoin was to smooth transactions between other crypto currencies, so most of the buying and selling of USDC was to convert between one coin and "USD" while still remaining in the crypto ecosystem.
The entire reason the peg can remain is because one company, Circle, is guaranteeing to purchase it for $1. If you want to cash out a small amount, sure you can go through a company like Coinbase but if you try to cash out billions then that will just force Coinbase to go to Circle in order to maintain their own liquidity.
It's widely known that Circle backs USDC 1:1 with cash and cash equivalents. That's the value prop compared to Tether.
It doesn't have to be a huge mystery as to whether Circle can meet Monday liquidity demands. You could look at USDC trading volume since it de-pegged, set the buy/sell ration as you see fit - or even do some onchain analysis - then compare to Circle's cash reserves. This would be a worst case scenario.
Logic trumps puzzles.
USDC isn't an algorithmic stablecoin or backed by non-cash assets. It is a coin that is redeemable 1:1 for cash, always. They have approximately $40b in coins and is only "short" $3.3b. Right now the first 91% to redeem can still get a full dollar, not everyone who redeems gets 91 cents.
People who have no idea how it works are panic selling fearing a crash. Other people are buying up as much as they can because you're effectively selling someone a dollar bill for 95 cents, a deal I'd take every day.
That's what I realized after doing some more research. This is really a test of Circle's claims. If circle really has 1-1 liquid assets to cover all USDC, this is a non-issue and many people will make some very easy money after this weekend.
If, however, it's assets are not as liquid as claimed or not as 1-1 as claimed, then USDC and Circle will likely collapse Monday morning, quite possibly taking down Coinbase and much more with them.
Last night I bought at a ~6% discount on Gemini.
It's a terrible trade to make now though.