Moody’s analysts have expressed concern that the recent drop in the value of the USDC stablecoin to $0.89 may have far-reaching implications for the adoption of all stable cryptocurrencies and lead to increased regulation.
The US banking sector has been hit by a major crisis that has resulted in the collapse of large banks such as Silicon Valley (SVB) and Signature.
Circle, the company behind USDC, had over $3 billion in reserves in SVB, causing panic among stablecoin owners who began selling off their holdings.
As a result, USDC decoupled from the dollar, which until now had shown remarkable resilience, surviving major scandals in the cryptocurrency industry.
However, analysts warn that stablecoin issuers rely on a small set of financial institutions, which limits the stability of stablecoins.
While the USDC stablecoin quickly restored its peg to the dollar, this was only after the US Federal Deposit Insurance Corporation (FDIC) announced that it would support Silicon Valley Bank and pay all deposits to bank customers.
If the FDIC had not intervened, USDC capitalization would have continued to fall rapidly, and Circle would have been forced to draw on its reserves.
This would have increased pressure on the banks where Circle holds assets, creating risks for other stablecoins.
The CEO of the largest cryptocurrency exchange, Binance, Changpeng Zhao, has also warned that traditional banks pose a real risk for stablecoins backed by fiat currencies.