USDC Depeg and Regulatory Scrutiny: Moody’s on Stablecoins‘ Future
• Moody’s Investors Service recently released a report that suggests USDC’s depegging could lead to increased scrutiny of stablecoins and reduced adoption.
• This follows the collapse of Silicon Valley Bank on March 10th, which had $3.3 billion in assets tied up in USDC issuer Circle Internet Financial.
• Despite the disruption, Circle cleared substantially all of its backlogged requests for minting and redemption of USDC by close of U.S. banking operations on March 15th.
Moody’s Report Warns Of Stablecoin Adoption Decrease Due To USDC Depeg
Moody’s Investors Service recently released a Sector Comment report that warns that USD Coin (USDC) losing its peg could negatively affect adoption of stablecoins and potentially increase calls for regulation. The sudden collapse of Silicon Valley Bank on March 10th resulted in USD Coin issuer Circle Internet Financial having $3.3 billion in assets tied up in the bank.
Circle Clears Substantial Amount Of Backlogged Requests For Minting And Redemption Of USDC
Over the course of 3 days, Circle cleared approximately $3 billion in USD Coin redemptions as the value dropped to around $0.87. By close of U.S banking operations on March 15th, Circle had „cleared substantially all“ requests for minting and redemption of USDC as per their statement on Twitter: „Update: As of close of U.S banking operations Wednesday, March 15, we have cleared substantially allof the backlogofmintingandredemptionrequestsforUSDC.“ This was followed by the Federal Deposit Insurance Corporation announcing it would backstop deposits held at Silicon Valley Bank – allowing Circle full access to its reserves again and restoring USDC’s peg value shortly thereafter .
Increased Regulatory Scrutiny Could Hinder Stablecoin Growth
As a result, Moody’s claims large fiat-backed stablecoins may face resistance from financial institutions who are concerned about potential volatility due to similar incidents occurring in future – thus hindering growth within this sector . The analysts state: „Financial institutions may reconsider adopting stablecoins to settle agreements involving tokenized securities out of concern over the coins‘ potential volatility.“
Stablecoin Usage On The Rise Despite Recent Turmoil
Despite recent turmoil within traditional banking systems culminating with USDC losing its peg – usage for stablecoins is still rising as many organizations continue to adopt these digital currencies for payments and settlements purposes . Businesses such as Visa have already started issuing debit cards backed by cryptocurrencies such as Paxos Standard (PAX) while other companies like PayPal are set to launch their own version soon . Moreover , various countries are also exploring how they can utilize digital currencies issued by central banks such as those being developed by China , Sweden , Norway , Canada , Bahamas and Thailand etc .
In conclusion , Moody’s report suggests that issues similar to what occurred with USD Coin will cause an increase in regulatory scrutiny towards stablecoins which will ultimately hinder their growth – however despite this setback usage continues to rise amongst businesses and governments alike .