De-pegging of stablecoins USDC and DAI allows debtors to save over $100M on loans
The de-pegging of stablecoins USDC and Dai from the US dollar led to a frenzy of loan repayments in the DeFi space, allowing debtors to save over $100 million on their loans, highlighting the importance of stablecoins while demonstrating the risks associated with them.
The recent de-pegging of stablecoins USD Coin (USDC) and Dai from the US dollar led to a frenzy of loan repayments in the decentralized finance (DeFi) space. Debtors took advantage of the temporary price dislocations to save over $100 million on their loans. The depegging occurred in the backdrop of broader crypto turmoil, following the collapse of Silicon Valley Bank on March 10.
The USDC price dropped to a low of $0.87 on March 11 amid concerns about its reserves being locked at SVB. MakerDAO’s stablecoin, DAI, also de-pegged briefly, going as low as $0.88 on March 11. However, USDC and DAI started heading back towards their peg soon after, resulting in only $500 million in loan repayments across Tether (USDT), USDC, DAI, and other coins on March 12.
A report by digital assets data provider Kaiko revealed that more than $2 billion in loan repayments were made on decentralized lending protocols Aave and Compound on March 11, with over half made in USDC. An additional $500 million in debts were paid in DAI on the same day. Blockchain analytics firm Flipside Crypto estimates that USDC debtors saved $84 million, while those using DAI saved $20.8 million by paying back their loans while the stablecoins were de-pegged.
The depegging of USDC led MakerDAO to reconsider its exposure to the stablecoin, as crypto projects incorporating DAI in their tokenomics suffered losses due to a chain reaction. Overall, the incident generated countless arbitrage opportunities across the DeFi ecosystem and highlighted the importance of stablecoins like USDC.
Circle’s USDC began climbing back to $1 following confirmation from CEO Jeremy Allaire that its reserves were safe, and the firm had new banking partners lined up. Government assurances that depositors of SVB would be made whole also helped restore confidence. At the time of writing, USDC was sitting at $0.99, according to Coinpaprika data.
While the incident demonstrated the risks associated with using stablecoins, it also highlighted their importance in the DeFi ecosystem. Stablecoins like USDC and DAI provide a stable store of value for DeFi applications, enabling users to borrow and lend with confidence. However, their centralized nature means they are vulnerable to regulatory and counterparty risks.
