The stablecoin market experienced significant turbulence after USDC, the world’s second-largest stablecoin, depegged from the U.S. dollar. USDC’s depegging was a result of a sell-off that followed Silicon Valley Bank’s (SVB) failure to process Circle’s $40 million transfer request, which accounted for $3.3 billion of Circle’s funds. Due to USDC’s significant influence in the stablecoin ecosystem, other stablecoins such as DAI, USDD, and FRAX also depegged from the U.S. dollar.

DAI, issued by MakerDAO, lost part of its value following USDC’s depegging. According to Statista, as of June 2022, $6.78 billion worth of DAI supply was backed by $8.52 billion worth of cryptocurrencies. 

USDC, which made up 51.87% of DAI’s collateral, was worth $4.42 billion. Other significant cryptocurrencies included Ether and Pax Dollar (USDP), but Ether was also in a market freefall.

Consequently, DAI briefly dipped to well below $0.9 before recovering to trade around the $0.92 mark. Meanwhile, USDD, a stablecoin issued by Tron, and FRAX, a fractional-algorithmic stablecoin, faced similar fates. 

Due to the negative market sentiment, USDD experienced a nearly 8% drop and traded at $0.925, while FRAX fell even further to $0.885.

The depegging of these stablecoins was triggered by Circle’s announcement that SVB had not processed $3.3 billion of its funds for withdrawal. 

SVB was shut down by the California Department of Financial Protection and Innovation, with the Federal Deposit Insurance Corporation appointed as the receiver to protect insured deposits.

The depegging of USDC, followed by DAI, USDD, and FRAX, caused significant turbulence in the stablecoin market. However, the market has since shown some signs of recovery. 

Nonetheless, this event serves as a reminder of the inherent risks involved in the cryptocurrency market and the importance of closely monitoring market trends.

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