Stablecoin Situation Takes Worse Turn Causing Another Major Stablecoin To Hit Lifetime Lows
The past week has been bearish for the entire cryptocurrency industry and it is mainly thanks to the crash of the major banks that were crypto proponents.
While the entire crypto industry was facing a downfall, it was the stablecoin segment that faced the worst decline.
The entire past week has proven to be a rollercoaster for the stablecoin industry. This is because their reserves were impacted by the takedowns of the major banking firms.
These were mainly the banks known for providing a lot of support and backing to the cryptocurrency industry. They had very prominent clients from the cryptocurrency industry that had stored their crypto reserves in these banks.
The demise of the Major Banking Firms
At first, it was the Silvergate Bank that went down due to the financial crisis. The bank was unable to make it out of the financial crisis, and thus, it ended up liquidating.
With Silvergate pulling out from the support of the cryptocurrency industry, the entire crypto market faced a downtrend.
Then it was the Silicon Valley Bank that was shut down by the FDIC of the United States. It caused a further demise in the crypto market’s valuation.
However, the major stablecoins ended up taking a fall, which is a very rare site. While most of the stablecoins witnessed slight de-pegging, it was USDC that ended up facing a huge one.
Its value ended up falling below 90 cents, whereas, it should have been pegged with the full price of the dollar.
As the value of the USDC de-pegged, Circle, the stablecoin issuer released several statements that helped push the token’s price higher. It is now at a high of 95 cents and it is on track to hit the 100 cents mark.
DAI Experiences an All-Time Low De-peg
Just as the USDC ended up getting de-pegged, the focus of the entire cryptocurrency industry was on the particular stablecoin. This is because USDC is the second-largest stablecoin in the entire market in terms of valuation.
Being concerned about the de-pegging of the USDC, the cryptocurrency industry forgot that Dai (DAI), the fourth-largest stablecoin had also experienced the same phenomenon.
Due to the latest developments, the trading value of DAI is de-pegged as well. Its value went to a low of 0.88 cents, which is the all-time low level that the stablecoin has ever hit.
This was another alarming situation for the entire stablecoin community as they had one more stablecoin to worry about.
Current Situation of DAI
Although the token did hit an all-time low, it did manage to recover in value by 2 cents. At the time of writing, the trading value of DAI is at 90 cents and the data is shared by CoinGecko.
The reason behind DAI’s de-pegging is the stablecoin losing its collateralization in the background. It had been developed as an algorithmic stablecoin and it is dependent upon MakerDAO’s holdings for collateralization.
One of the major collateral assets backing DAI through the MakerDAO protocol is USDC, which resulted in the stablecoin’s price decline.
What’s the Future of DAI?
As of now, the analysts are more concerned about the future of USDC than the future of DAI. Circle confirmed right after the announcement of Silicon Valley Bank’s demise that it has $3.3 billion stuck at the bank.
The overall valuation of USDC is $40 billion, which means that more than 8% of its reserves are stuck at the Silicon Valley Bank. This makes the future of the token quite uncertain in the entire market.
Dune has revealed that in a matter of 24-hours, the valuation of DAI was burned by $563 million. As a result, the market capitalization of the stablecoin fell to $4.9 billion.
Due to the constant decline in the stablecoin market, many investors have been running away and things are becoming quite alarming for the industry.