Is USDC the best Stablecoin for DeFi?
The recent de-pegging of USDC has caused concern for many on the DeFi side of crypto because of USDC’s reliability. Following the collapse of Silicon Valley Bank (SVB), the stablecoin has been put to the test, with many wondering if it would lose all value similar to TerraUSD, but that has not been the case.
In fact, the speed of USDC’s recovery can be attributed to its transparency and proper management, unlike USDTether which has remained a mystery to most investors that are cautious about its lack of auditing.
USDC’s depeg and rebound
The depeg originally occurred shortly after the fall of SVB and reached a price as low as $0.89. Panic soon entailed as many wondered if another major crypto crash was coming. Crypto had already been reeling following major issues caused by TerraLuna and FTX, and this de-pegging looked to be the next major event, threatening liquidity on major DeFi platforms across all networks.
Fortunately, the de-pegging happened on a Friday night when American banks were all closed. This gave investors and bankers more time to understand the situation and prepare for a busy Monday which would hopefully bring better news.
Investors were quick to spot the opportunity, believing that USDC would most likely return to its $1 peg (or at least somewhere near it), and saw a perfect time to invest in the stablecoin at its $0.89 price tag which would create some decent gains as the coin returned to a dollar.
Why auditing matters
The quick rebound from USDC can be attributed to one major aspect of USDC that neither USDT nor TerraLUNA have - proper auditing. Circle, the company in charge of USDC, has made its reserve backing the coin extremely transparent as a direct way of competing against other stablecoins, such as USDT, which are harder to trust.
When SVB collapsed, Circle immediately told everyone that it had lost $3.3 billion, which was equal to about 8% of its total reserves. While this was not ideal for the company, their response and the fact that their reserves were not based on algorithms or false promises meant that the coin was able to remain stable instead of crashing further and posing massive risks on the entirety of DeFi.
Tether remains a mystery
While this is only speculation, it would be interesting to see how this all would have unfolded if it was USDT that de-pegged (or “untethered”) instead. Their lack of transparency has caused the coin to be untrustworthy due to the fact that it could crash at any moment. If such a thing were to happen it’s possible that we would be looking at another event on par with the TerraLUNA collapse.
Fortunately, that never occurred; but what did happen proves that USDC can survive stressful events that are capable of destroying weaker coins. With this being the case, it’s obvious what the superior coin is for investors who do not want to use risky assets when engaging with financial services on DeFi platforms.
