The death spiral of the Terra (LUNA) and TerraUSD (UST) ecosystems was the catalyst for the 2022 bear market – causing millions in losses, damaging investor sentiment and increasing the regulatory spotlight on cryptocurrencies. However, the recent depegging of Circle’s USD Coin (USDC) led Binance CEO Changpeng ‘CZ’ Zhao to believe that traditional banks are a risk for stablecoins that are usually pegged 1:1 with fiat currencies, like the US dollar.
On March 11, Circle announced that Silicon Valley Bank (SVB) was not processing a $3.3 billion withdrawal request. The crypto market responded to the revelation by selling its holdings of USDC, causing the US dollar-backed stablecoin to lose ground. Given SVB’s direct involvement in destabilizing USDC prices, CZ blames the banks for increasing the risk of stablecoins.
Banks are at risk for fiat-created stable coins.
– CZ Binance (@cz_binance) March 12, 2023
Supporting CZ’s sentiment, community members came up with the idea of a crypto-backed stablecoin. CZ responded by highlighting the defunct algorithmic stablecoin launched by Do Kwon, saying:
“Do Kwon really had the right idea, but he just failed miserably at the execution.”
In addition, according to for CZ, fiat currency – in itself – is a risk without getting crypto into the equation.
basic.
– CZ Binance (@cz_binance) March 11, 2023
While many jurisdictions are seeking legal action against Kwon, the businessman remains in a shelter unknown to the authorities.
related: The instability of USDC Circle caused a domino effect on DAI, the USDD stablecoin
Many investors foreswing the possibility of USDC depegging and decided to sell their holdings to avoid losses. However, for one investor, the rash decision resulted in a loss of more than $2 million.
With fears of USDC insolvency growing, users fled to safe havens in other cages. Not everyone will make it in one piece, however.
Here’s how an unlucky user paid $2,080,468.85 to receive $0.05 of USDT. pic.twitter.com/R8YdudWfsV
— BowTiedPickle.eth | Sender Solidity (@BowTiedPickle) March 11, 2023
Instead of selling USDC holdings in the liquidity pool with a slippage of 6%, investors chose to use the “asked” method which ultimately resulted in a maximum extractable value (MEV) with a profit of $2.045 million after paying $45 in gas and $39,000 in MEV bribes.