Crypto analysts have expressed caution regarding the potential vulnerability of USDC and DAI in maintaining their dollar parity relative to other stablecoins.
Several instances have occurred within the cryptocurrency industry in recent years, wherein USDC and DAI exhibited such behavior for a brief period.
Assessing the Risk of USDC and DAI Depegging
The study conducted a comparative analysis of five stablecoins: USDT, USDC, BUSD, USDP, and DAI. The four cryptocurrencies above are predominantly collateralized with Real-world assets (RWA), whereas the fifth, DAI, derives its backing from a combination of RWA, stablecoins, and crypto-assets.
The study examined 24 months encompassing historical price data, culminating in June of 2023. Throughout this particular period, it was intended for the prices of all five stablecoins to uphold a parity of $1. During the period of the Silicon Valley Bank collapse in March 2023, it was observed that both USDC and DAI experienced substantial declines, reaching a minimum value of $0.87 and $0.85, respectively.
Stablecoin prices are subject to the influence of various factors, both internal and external, within the cryptocurrency ecosystem and the broader financial industry. In the context of USDC and DAI, it is noteworthy that both exhibited a notable level of correlation, particularly about the SVB event. This correlation suggests a susceptibility to idiosyncratic occurrences and deliberate interventions.
In contrast, it is noteworthy that the USDP coin, despite possessing a comparatively lesser market capitalization and trading volume, exhibited a more pronounced degree of deviation from its intended $1 peg, manifesting both in excess and deficit. However, it demonstrated a lower correlation with other stablecoins, implying heightened autonomy.
The study further observed that the probability of a stablecoin deviating from its fixed value of $1 may be subject to the influence of the specific day within a given week. During the weekend of March 11-13, 2023, it was observed that the value of USDC experienced a decline to $0.87. This occurrence coincided with the closure of traditional banking systems, consequently influencing liquidity.
Stablecoin Depegging Causes and Effects
Debugging occurs when the value of stablecoins deviates from their intended pegged value. Various factors, such as the presence of underlying collateral, the efficacy of reserve governance, and the level of market volatility, influence this phenomenon’s susceptibility. Deviation from the pegged value can lead to financial losses for either buyers or sellers, depending on the direction of the variation.
The occurrence of debugging events can be attributed to a variety of factors. Market volatility can instigate a decline in stablecoin prices or prompt a transition towards assets of superior quality, thereby generating a surge in demand and subsequently causing prices to surpass the peg. Liquidity constraints, frequently stemming from heightened volatility, can impact stablecoin valuations.
The destabilization of stablecoin stability and subsequent debugging can be attributed to various factors, including mismanagement of reserves, impaired assets, abrupt increases in demand, surplus supply, inadequate transparency, and erosion of confidence.