Analysts Dr. Cristina Polizu, Anoop Garg, and Miguel de la Mata unveiled findings that show USD Coin (USDC) and Multi-Collateral Dai (DAI) experiencing significant depegging events, a phenomena where these coins deviate from their $1 value, casting a shadow on their stability credentials. The Stablecoins covered under their report included Tether (USDT), USD Coin (USDC), Multi-Collateral Dai (DAI), Binance USD and USDP Dollar (USDP)
The research shows USDC and DAI have strayed further and more frequently from their $1 peg compared to rivals like Tether (USDT) and Binance USD (BUSD). In March 2023, a banking crisis led by the collapse of Silicon Valley Bank (SVB) saw USDC plummet to $0.87. DAI wasn’t far behind.
A Pattern of Instability
This incident was not an isolated occurrence. Over the past two years, USDC and DAI have spent more time below $1 compared to Tether and Binance USD. But why is this happening?
The March calamity was directly tied to the failing health of three U.S. banks, including SVB. At that time, USDC had $3.3 billion of its reserves deposited at SVB, and DAI had significant USDC holdings supporting its value. When the banks faltered, the value of USDC and DAI followed suit.
Read More: William Barr Warns of Risks Posed by Non-regulated Stablecoins!
Stabilizing the Unstable
“Maintaining the peg and a stabilization mechanism requires good governance, adequate collateral and reserves alongside liquidity, market confidence, and adoption,” noted Dr. Polizu and her colleagues in their report.
The real-world calamities exposed the frailties in these systems, particularly their sensitivity to market volatility and governance challenges.
Tether is a Hero?!
Surprisingly, Tether, which has often been a symbol of stablecoin controversy and regulatory scrutiny, has emerged as a model of stability, according to the S&P report. Since the beginning of the year, Tether’s supply has surged by 25%, granting it a dominant market share of 67%.
For anyone who thought stablecoins are the crypto-equivalent of stashing money under a mattress, the new findings serve as a wakeup call. The latest data on stablecoins shows that there’s nothing entirely stable about digital assets — not even the ones that claim to be.
What do you think about the findings of this report?
Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.