Every crypto investor’s nightmare begins when a sudden change in the industry causes panic and massive selling. The effects of these two events usually lead to an uncontrollable drop in prices and deep losses for investors.
An example of such an event is the news that Circle was unable to withdraw $3.3 billion from Silicon Valley Bank. Notably, the bank is closed by the California Department of Financial Protection and Innovation.
As the news spread, a massive selloff followed, causing unlucky investors to lose heavily in failed transactions.
Deep Losses For Crypto Investors
The problem started when the crypto company Circle announced that it did not receive a $3.3 billion wire transfer from Silicon Valley Bank. As soon as the announcement came out, many USDC investors panicked and started pulling back. As a result, the USDC stablecoin depeged from US dollars.
While some investors were quick enough to exchange USDC for USDT, investors were not so lucky. At Twitter posts pointed out by BowTiedPickle, the investor made a payment of $2 million but received $0.05 USDT.
After looking into the issue, BowTiedPickle discovered that investors were using the KyberSwap aggregation router to dump “a large clip of 3CRV (DAI/USDC/USDT) LP tokens into USDT”. Users keep crypto stablecoins in a liquidity pool that can be traded for USDT at a slippage of 6%. But as BowTiedPickle disclosed above, he chose a shady way.
In their haste, investors forgot to adjust the slippage that would have allowed them to set a price for the transaction. This causes human error, resulting in permanent loss of funds.
Brief On USDC Saga
USDC is the second largest stablecoin in the market after USDT. At the time of writing, the stablecoin has lost its peg in USD. It is currently at $0.9169 and has lost 13.68% of its market capitalization.
The USDC issue started when Circle showed the latest audit which revealed that as of January 31, 20% or $8.6 billion of its reserves were in different financial institutions, including Silvergate, which crashed and closed Silicon Valley Bank.
To be transparent for our customers, Circle declare difficulties in withdrawing $3.3 billion of $40 billion from USDC reserves in SVB. It is also revealed that it joins other SVB depositors and customers to call for continuity.
1 / After confirming at the end of today that the wire that started on Thursday to clear the balance has not been processed, $3.3 billion of the ~$40 billion USDC reserves remain in SVB.
– Circle (@circle) March 11, 2023
Unfortunately, the announcement produced negative results due to panic, causing many investors to withdraw. Additionally, crypto exchanges like Coinbase and Binance paused USDC conversions 30 minutes after the announcement, further worsening the situation.
Featured images from Pixabay and charts from Tradingview.com