S&P Report Reveals Unstable Ground Beneath Stablecoins USDC & DAI

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A recent report from S&P Global highlighted the unpredictability of what are supposed to be the digital currency world’s safe havens — stablecoins. Analysts Dr. Cristina Polizu, Anoop Garg, and Miguel de la Mata unveiled findings that show USD Coin (USDC) and Multi-Collateral Dai (DAI) experiencing significant depegging events, a phenomena where these coins deviate from their $1 value, casting a shadow on their stability credentials. The Stablecoins covered under their report included Tether (USDT), USD Coin (USDC), Multi-Collateral Dai (DAI), Binance USD and USDP Dollar (USDP)

A Sudden Dip

The research shows USDC and DAI have strayed further and more frequently from their $1 peg compared to rivals like Tether (USDT) and Binance USD (BUSD). In March 2023, a banking crisis led by the collapse of Silicon Valley Bank (SVB) saw USDC plummet to $0.87. DAI wasn’t far behind. 

This was not an isolated incident. Over the past two years, USDC and DAI have spent more time below $1 compared to Tether and Binance USD. But why is this happening?

The March calamity was linked to the failing health of three U.S banks, including SVB. At the time, USDC had $3.3 billion of its reserves stashed at SVB, and DAI had extensive USDC holdings backing it as well. When the banks crumbled, so did the value of USDC and DAI.

Also Read – Visa Accelerates Crypto Adoption With USDC Integration on Solana

Stabilizing the Unstable

“Maintaining the peg and a stabilization mechanism requires good governance, adequate collateral and reserves alongside liquidity, market confidence, and adoption,” noted Dr. Polizu and her colleagues in their report. The real-world calamities exposed the frailties in these systems, particularly their sensitivity to market volatility and governance challenges.

Tether’s is a Hero

Tether, which has often been the poster child for stablecoin controversy and regulatory scrutiny, has emerged as a paragon of stability, according to the S&P report. Since the beginning of the year, Tether’s supply has soared by 25%, giving it a dominant market share of 67%.

For anyone who thought stablecoins are the crypto-equivalent of stashing money under a mattress, the new findings serve as a wakeup call. The latest data on stablecoins shows that there’s nothing entirely stable about digital assets — not even the ones that claim to be.