Day: March 12, 2023

Aave Freezes Stablecoin Trading Amid Price Volatility

by Blockchain News

Aave, a popular lending protocol in the decentralized finance (DeFi) space, has taken action to mitigate the impact of recent price volatility in the stablecoin market. On March 11, the price of USD Coin (USDC), a commonly used stablecoin, depegged, leading to concerns over the stability of other stablecoins. In response, Aave has temporarily frozen trading of stablecoins and set the loan-to-value (LTV) ratio to zero.

The decision to freeze trading was based on an analysis by Gauntlet Network, a DeFi risk management firm, which recommended a temporary pause of all v2 and v3 markets. Aave’s governance forum noted that setting the LTV ratio to zero would “discount the borrowing power of the asset” without affecting the health factor (HF) of any user position. The HF is a measure of the risk associated with a user’s position on the Aave platform.

The LTV ratio is an important metric for determining the amount of credit that can be secured using crypto as collateral. When a user borrows funds on the Aave platform, they must put up collateral in the form of crypto assets. The LTV ratio is calculated by dividing the amount of credit borrowed by the value of the collateral. A higher LTV ratio means that a user can borrow more funds with less collateral, but it also increases the risk of liquidation if the value of the collateral decreases.

By setting the LTV ratio to zero, Aave has effectively suspended all borrowing against stablecoins. This move is designed to protect users from the risk of liquidation during a period of heightened volatility. However, it also means that users who have already borrowed funds using stablecoins as collateral will need to find alternative sources of collateral or risk having their positions liquidated.

The decision to freeze trading of stablecoins on Aave also highlights the growing importance of stablecoins in the DeFi ecosystem. Stablecoins are designed to maintain a stable value relative to a particular currency or asset, such as the US dollar or gold. They are commonly used as a form of collateral on DeFi platforms, allowing users to borrow and lend funds without being exposed to the volatility of other cryptocurrencies.

However, as the recent depegging of USDC demonstrates, stablecoins are not immune to price volatility. This can create risks for users who rely on stablecoins as collateral, as a sudden drop in value can trigger liquidations and result in the loss of funds. Aave’s decision to freeze trading of stablecoins and set the LTV ratio to zero highlights the need for greater risk management measures in the DeFi ecosystem.

In conclusion, Aave’s decision to freeze stablecoin trading and set the LTV ratio to zero is a response to the recent price volatility in the stablecoin market. The move is designed to protect users from the risk of liquidation during a period of heightened volatility but also means that users who have already borrowed funds using stablecoins as collateral will need to find alternative sources of collateral. This decision underscores the importance of stablecoins in the DeFi ecosystem and the need for effective risk management measures to protect users. Stablecoins play a crucial role in DeFi by providing a stable asset that can be used as collateral for loans and other financial activities. However, as Aave’s decision demonstrates, stablecoins are not immune to price volatility and can create risks for users if their value suddenly drops.

To address these risks, DeFi platforms like Aave need to implement effective risk management measures that can help protect users from the impact of market volatility. This includes setting appropriate LTV ratios that balance the need for collateral with the risk of liquidation, as well as monitoring the market for signs of instability.

In addition to risk management measures, there is also a need for greater transparency and accountability in the DeFi ecosystem. Users need to be able to trust that the platforms they are using are safe and secure, and that their funds are protected from theft or other forms of loss. This requires clear and transparent reporting of platform performance, as well as robust security measures to prevent hacks and other forms of cyber-attacks.

Overall, the recent decision by Aave to freeze stablecoin trading and set the LTV ratio to zero is a reminder of the risks associated with stablecoins in the DeFi ecosystem. While stablecoins can provide a stable asset for collateral, they are not immune to market volatility and can create risks for users. To address these risks, DeFi platforms must implement effective risk management measures and ensure transparency and accountability in their operations. By doing so, they can help build trust and confidence in the DeFi ecosystem and promote its continued growth and development.

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Circle Plans to Cover USDC Shortfall After SVB Shutdown

by Blockchain News

Circle, the issuer of the stablecoin USD Coin (USDC), has announced that it will use corporate resources to cover the shortfall on its reserves after Silicon Valley Bank (SVB) was shut down by the California Department of Financial Protection and Innovation. USDC liquidity operations will resume as normal when banks open on Monday, enabling redemption at 1:1 with the US dollar. The stablecoin lost its $1 peg on March 11, trading as low as $0.87, due to the disclosure of $3.3 billion of Circle’s reserve held at SVB. (Read More)

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USDC Holders Panic Sell Amid Solvency Concerns

by Blockchain News

USD Coin (USDC), a popular stablecoin pegged to the U.S. dollar, has been facing solvency concerns since March 10, leading several holders to panic sell their holdings and switch to other stablecoins. USDC’s solvency fears arose after the disclosure that a portion of USDC’s collateral is held at Silicon Valley Bank, which was shut down by California authorities after revealing efforts to raise extra capital. The news of the bank’s closure and USDC’s collateral in it caused concern among USDC holders, leading to panic selling and mass exodus.

During the panic selling, several USDC holders attempted to switch to other stablecoins, but not all of them were successful. One user lost over 2 million USDC in a failed attempt to exchange them for Tether (USDT) using KyberSwap’s decentralized exchange aggregator. KyberSwap is a decentralized exchange (DEX) that aggregates liquidity from several DEXs. In the transaction, the user dumped a large amount of 3CRV (DAI/USDC/USDT) into USDT using KyberSwap’s aggregation router. In a postmortem, the KyberSwap protocol team explained that “since the market was undergoing a volatile period, all routes failed at estimating gas. The rate strongly fluctuated & only 0x’s route was successful but with a very poor rate.” After confirming the swap at 0x’s rate in a pop-up, a bot detected the opportunity and gained 2,085,256 USDC from that Univ2 pool. The protocol is in talks with the bot creator, the bot user, and third parties to assist with funds recovery.

Meanwhile, Tron founder Justin Sun reportedly withdrew 82 million USDC and exchanged them for Dai (DAI) using Aave v2, a decentralized finance protocol. The move came after Circle, the company behind USDC, disclosed holding $3.3 billion at the Silicon Valley Bank, nearly 23% of its reserves. While Circle assured USDC holders that liquidity operations would “resume as normal when banks open on Monday morning in the United States,” many holders remained unconvinced.

Wallets related to IOSG Ventures sold 118.73 million USDC for 105.67 million USDT and 2,756 Ether (ETH) worth $3.98 million via three addresses, on-chain data shows. The institution still holds nearly 45 million in USDC. These movements suggest that USDC holders were not confident about the stablecoin’s solvency and were trying to move their funds to other stablecoins or cryptocurrencies.

Despite the panic selling and exodus, the USDC price has slowly recovered after turbulent trading hours on March 11 to trade at $0.97 at the time of publication. However, the incident has once again highlighted the risks associated with stablecoins and the need for transparency and oversight in the crypto industry. The incident also underscores the importance of decentralized exchanges and protocols that offer users greater control and security over their assets.

While the USDC panic selling was a localized event, it could have wider implications for the stablecoin industry as a whole. Stablecoins have become increasingly popular in recent years due to their stability, ease of use, and ability to serve as a bridge between the traditional financial system and the cryptocurrency market. However, their rapid growth has also led to concerns about their regulation, oversight, and long-term viability.

Stablecoins are not backed by any physical asset but instead rely on a basket of assets or a reserve pool of funds to maintain their peg to the U.S. dollar or other currencies. This makes them vulnerable to market fluctuations, liquidity crises, and other risks that can undermine their stability and solvency.

In response to these concerns, regulators and industry players have called for greater transparency and oversight in the stablecoin industry. In September 2020, the Office of the Comptroller of the Currency (OCC) issued guidance allowing banks to hold reserves for stablecoin issuers, signaling greater regulatory support for the industry.

In addition, several stablecoin issuers have taken steps to increase transparency and accountability, including regular audits and disclosures of their reserve holdings. For example, Paxos, the issuer of Paxos Standard (PAX), a stablecoin pegged to the U.S. dollar, recently announced that it had obtained regulatory approval from the New York State Department of Financial Services (NYDFS) to offer its stablecoin to institutional clients.

Overall, while the USDC panic selling was a cause for concern for USDC holders, it also highlights the need for greater transparency and oversight in the stablecoin industry. Stablecoins are an important and growing part of the crypto ecosystem, but their stability and solvency depend on trust and confidence from users and regulators alike. As the industry continues to mature, it will be essential for stablecoin issuers and regulators to work together to address these challenges and ensure the long-term viability of stablecoins as a reliable and trustworthy form of digital currency.

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Bank of England halts Silicon Valley Bank UK branch operations

by Blockchain News

The Bank of England (BoE) has stopped the operations of Silicon Valley Bank’s United Kingdom branch (SVB U.K.), citing its limited presence and no critical functions supporting the financial system. On March 10, the BoE declared that SVB U.K. would no longer be accepting deposits or making payments and that it would be placed into a Bank Insolvency Procedure. The decision followed the closure of SVB by the California Department of Financial Protection and Innovation.

The BoE explained that a bank insolvency procedure would enable eligible depositors to receive payments up to the protected limit of £85,000 or up to £170,000 for joint accounts through the Financial Services Compensation Scheme as quickly as possible. Bank liquidators would manage the remaining assets and liabilities of SVB U.K. during its insolvency proceedings, with any recoveries distributed to its creditors.

The announcement has raised concerns among several UK venture capitalists (VCs), who have expressed their support for SVB U.K. Index Ventures and Atomico issued a joint statement on March 12 endorsing SVB U.K., describing it as a trusted and valued partner that plays a pivotal role in supporting startups in the UK. The Coalition for a Digital Economy, a UK nonprofit that campaigns for policies to support digital startups, stated on March 11 that a large number of startups and investors in the ecosystem have significant exposure to SVB U.K. and will be very concerned.

Meanwhile, a Castle Hill report published on March 11 revealed that prominent blockchain VCs have over $6 billion in assets at the now-defunct bank. This includes $2.85 billion from Andreessen Horowitz, $1.72 billion from Paradigm, and $560 million from Pantera Capital.

The closure of SVB U.K. will have significant repercussions for startups and investors who have relied on the bank for financial services. Several prominent blockchain VCs have a substantial amount of assets at the bank, and their exposure to the insolvency proceedings could have a severe impact on the blockchain ecosystem. The closure also highlights the potential risks associated with relying on banks with limited operations and no critical functions in the financial system.

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Future of Silicon Valley Bank May Put Trillions of Dollars at Risk

by Blockchain News

The potential collapse of Silicon Valley Bank (SVB) has caused alarm among regulators, investors, and depositors alike, with experts warning that the fallout could extend far beyond the tech bank itself. The Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) have been closely monitoring the situation and considering their options, but there are growing concerns that any missteps could have serious consequences for small banks across the United States.

According to Bob Elliot, a former Bridgewater executive and CEO of investment firm Unlimited, nearly a third of all deposits in the United States are held in small banks, and around 50% of these deposits are uninsured. While the FDIC does insure small deposits in all banks in the US, this only covers about $9 trillion of the nearly $17 trillion of outstanding deposit base. Under the hood, the coverage rate is roughly 50% across most institutions, while credit unions are higher.

With small banks in the United States holding $6.8 trillion in assets and $680 billion in equity as of February 2023, the failure of a major institution like SVB could trigger a chain reaction that puts thousands of small banks at risk of a run. As Elliot points out, this is not just a Wall Street problem, but a “main street problem” that could have serious implications for businesses and individuals across the country.

These concerns have been echoed by others in the industry, including Y Combinator CEO Garry Tan, who created a petition urging regulators to step in and implement a backstop for depositors. The petition notes that nearly 40,000 of all depositors at Silicon Valley Bank are small businesses, and warns that over 100,000 people could lose their jobs if swift action is not taken.

In response to these concerns, the FDIC and the Fed are reportedly discussing the creation of a fund to backstop more deposits at troubled banks. This fund would respond to the SVB collapse and would be intended to reassure depositors and reduce panic. While the details of this fund are still being worked out, it is clear that regulators are taking the situation seriously and are actively looking for ways to mitigate the potential risks.

Silicon Valley Bank is one of the top 20 largest banks in the United States and provides banking services to many crypto-friendly venture firms. The bank’s collapse would be felt throughout the industry, with assets from blockchain venture capitalists totaling more than $6 billion at the bank. Some of the largest investors include Andreessen Horowitz with $2.85 billion, Paradigm with $1.72 billion, and Pantera Capital with $560 million.

The future of Silicon Valley Bank is still uncertain, but what is clear is that the decisions made by regulators in the coming days and weeks will have significant consequences for the banking industry as a whole. As Elliot warns, the potential risks extend far beyond SVB itself and could put trillions of dollars at risk if not handled carefully.

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Banks increase risks to stablecoins

by Blockchain News

The recent depegging of Circle’s USD Coin (USDC) caused a stir in the cryptocurrency market, with Binance CEO Changpeng “CZ” Zhao pointing fingers at traditional banks for their role in increasing the risks to stablecoins. Circle’s disclosure that Silicon Valley Bank (SVB) did not process its $3.3 billion withdrawal request led to the depegging of USDC, causing the U.S. dollar-backed stablecoin to lose its peg. The event raised concerns among investors and regulators about the stability of stablecoins and the role of banks in their operations.

The crypto market had already been facing challenges in 2022, following the death spiral of the Terra ecosystem, which triggered a bear market, causing losses in billions and intensifying regulatory scrutiny over cryptocurrencies. However, the depegging of USDC brought the issue of stablecoins to the forefront of the discussion, with many questioning the risks and stability of these digital assets.

Stablecoins are digital assets that are pegged to a fiat currency, such as the U.S. dollar, with the aim of providing stability and reducing the volatility associated with cryptocurrencies. However, the recent events surrounding USDC have raised questions about the reliability of stablecoins, particularly in relation to their pegging mechanisms and the role of banks in their operations.

Binance CEO CZ’s remarks about the risks posed by traditional banks to stablecoins highlight the growing concerns about the stability and reliability of these digital assets. CZ argued that banks can destabilize stablecoins by delaying or blocking withdrawal requests, as seen in the case of SVB and Circle’s USDC. This could lead to a loss of confidence in stablecoins, causing investors to withdraw their holdings and triggering a sell-off in the crypto market.

The depegging of USDC has also intensified regulatory scrutiny over stablecoins and their operations. Regulators have expressed concerns about the lack of transparency and accountability in the stablecoin market, as well as the risks associated with their use in illegal activities, such as money laundering and terrorism financing. The recent events surrounding USDC have raised questions about the need for greater oversight and regulation of stablecoins, particularly in relation to their pegging mechanisms and the role of banks in their operations.

In conclusion, the depegging of Circle’s USDC has raised concerns about the reliability and stability of stablecoins and highlighted the risks posed by traditional banks to these digital assets. The event has intensified regulatory scrutiny over stablecoins and their operations, raising questions about the need for greater oversight and regulation in this area. While stablecoins have the potential to provide stability and reduce volatility in the crypto market, their reliability and stability will depend on their pegging mechanisms and the regulatory framework in which they operate.

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Ackman Urges US Government to Guarantee SVB Deposits

by Blockchain News

Billionaire hedge fund manager Bill Ackman has warned the US government that failing to guarantee all deposits held by Silicon Valley Bank (SVB) within 48 hours could result in the destruction of several financial institutions. In a tweet on March 11, Ackman called for the government to step in and protect all depositors, warning that a “giant sucking sound” would be heard from the withdrawal of uninsured deposits from all banks, not just the systemically important banks.

Ackman argued that the world would realize what an uninsured deposit is – an unsecured illiquid claim on a failed bank – and that this would lead to a drain on liquidity from community, regional, and other banks. He said that this could “begin the destruction” of these crucial institutions if the government does not take action.

Ackman also suggested that major financial institutions, such as JPMorgan Chase, Citibank, or Bank of America, could acquire SVB before Monday to prevent this outcome. However, he argued that this was an unlikely event and that the government needed to step in to guarantee SVB’s deposits.

According to Ackman, the situation could have been avoided if the US government had stepped in on Friday to guarantee SVB’s deposits. He argued that the long-standing bank’s “franchise value” could have been safeguarded and transferred to a new owner in return for an equity injection.

SVB is a bank that specializes in providing financial services to the technology industry. Its clients include startups, venture capital firms, and private equity firms. The bank has been in operation for over 35 years and has over $100 billion in assets under management.

SVB’s deposits are currently uninsured, meaning that they are not protected by the Federal Deposit Insurance Corporation (FDIC). This is because the bank’s deposits are considered to be predominantly from institutional clients and high net worth individuals, who are not covered by the FDIC’s deposit insurance program.

In response to Ackman’s tweet, SVB issued a statement saying that it was “well capitalized and well positioned to support our clients.” The bank also said that it had no plans to seek an acquisition and that its focus was on continuing to serve its clients.

The US government has not yet responded to Ackman’s call for deposit guarantees for SVB. However, the situation highlights the risks that can arise from uninsured deposits and the need for investors to carefully consider the risks and benefits of depositing their funds with financial institutions.

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Investors Rally to Support Silicon Valley Bank Amidst Possible Closure

by Blockchain News

Silicon Valley Bank (SVB) has been a major player in the tech industry for over 40 years, providing banking and funding services to countless startups and established companies alike. However, recent reports have indicated that the bank may be facing financial difficulties and could be winding down operations in the near future. This news has sent shockwaves throughout the industry, as many tech companies rely heavily on SVB for their banking needs.

In response to these concerns, a group of over 125 venture capitalists and investors have banded together to support SVB and limit the potential fallout from the bank’s collapse. The investors, which include some of the biggest names in the industry such as Sequoia Capital and General Catalyst, have signed a statement pledging their support for the bank and offering to help it find new sources of capital if necessary.

The statement reads in part, “We, the undersigned venture capitalists and investors, recognize the critical role that Silicon Valley Bank has played in the growth and success of the tech industry. We believe that it is essential to support SVB during this challenging time, and we stand ready to assist in any way we can to ensure that the bank continues to serve the needs of tech companies for years to come.”

The investors’ support for SVB comes at a time when many tech companies are already struggling due to the ongoing COVID-19 pandemic and its economic fallout. Losing access to funding and banking services from SVB could be a major blow for many companies, and could even lead to some going out of business altogether.

To avoid this outcome, the investors are offering to help SVB find new sources of capital, whether through traditional financing or alternative methods such as crowdfunding or community fundraising. They also plan to work with the bank to explore new business models and revenue streams that can help it remain viable in the long term.

Despite the challenges that SVB is currently facing, the bank remains a critical component of the tech industry and has a strong track record of supporting startups and other companies in their early stages. By rallying around SVB and offering their support, these investors are demonstrating their commitment to the industry as a whole and their belief that together, they can weather even the toughest storms.

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South Korea Invests in Metaverse Fund for Economic Growth

by Blockchain News

South Korea has been making significant investments in the metaverse, seeing it as a potential new economic growth engine. The country’s Ministry of Science and ICT recently announced a major investment in a fund dedicated to driving metaverse initiatives, with the goal of supporting the mergers and acquisitions of various firms in the metaverse ecosystem and helping domestic metaverse-related companies compete with global players.

The South Korean government has invested 24 billion Korean won ($18.1 million) to create a fund of more than 40 billion Korean won ($30.2 million) for metaverse development. The fund, called the Metaverse Fund, aims to help local players raise capital and compete with major tech companies, which have shown increasing interest in the metaverse.

The government recognizes that it can be difficult for local players to raise capital through private investments due to the underlying investment risks. As a result, the Metaverse Fund will provide a new avenue for investment and support to local companies looking to expand their metaverse-related offerings.

In addition to investing in the Metaverse Fund, South Korea also plans to actively support local metaverse-related companies. The country aims to help these firms compete with global players and plans to assist in their growth and development.

However, while South Korea is investing heavily in the metaverse, the country is still cautious about potential cross-border threats. In February, the country announced independent sanctions related to cryptocurrency thefts and cyberattacks against specific North Korean groups and individuals. This move demonstrates South Korea’s commitment to maintaining checks and balances on potential threats in the physical world.

Overall, South Korea’s investments in the metaverse reflect the country’s commitment to exploring new opportunities for economic growth. By supporting local companies and investing in the development of the metaverse ecosystem, South Korea is positioning itself to be a leader in this emerging field.

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Yellen Works with Regulators to Address Silicon Valley Bank Collapse

by Blockchain News

On March 10, 2023, California’s financial watchdog shut down Silicon Valley Bank (SVB) following an announcement of a significant sale of assets and stocks to raise $2.25 billion in capital to shore up operations. As a result, the Federal Deposit Insurance Corporation (FDIC) was appointed as the receiver to protect insured deposits. While the FDIC only insures up to $250,000 per depositor, per institution, and per ownership category, concerns are mounting about the impact of the collapse of SVB, particularly on small businesses that employ people across the country.

In response to the situation, United States Treasury Secretary Janet Yellen is working with regulators to address the collapse of SVB. In a recent interview with CBS News, Yellen stated that they are designing “appropriate policies to address the situation” at the bank. She also noted that they are not considering a major bailout, citing the reforms that have been put in place since the financial crisis. However, Yellen emphasized that they are focused on protecting depositors and are working with regulators to address their concerns.

One of the challenges facing depositors is the fact that most accounts at SVB are unsecured. Yellen acknowledged this issue and stated that regulators are “very aware of the problems that depositors will have.” She also expressed concern about the possibility of contagion to other regional American banks, stating that “the goal always is supervision and regulation is to make sure that contagion can’t- can’t occur.”

SVB is one of the top 20 largest banks in the United States and provides banking services to many crypto-friendly venture firms. According to a Castle Hill report, assets from Web3 venture capitalists totaled more than $6 billion at the bank, including $2.85 billion from Andreessen Horowitz, $1.72 billion from Paradigm, and $560 million from Pantera Capital. Yellen’s comments indicate that regulators are well aware of the significance of the collapse of SVB and are working to mitigate its impact.

Regarding the options available to the FDIC, Yellen noted that they are considering “a wide range of available options,” including acquisitions from foreign banks. She also emphasized that they are working to address the situation in a timely way.

In conclusion, Yellen’s remarks highlight the seriousness with which regulators are approaching the collapse of SVB. While a major bailout is off the table, protecting depositors, particularly small businesses, is a top priority. Regulators are exploring a range of options, including acquisitions from foreign banks, to address the situation and prevent contagion to other regional American banks.

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