The world's second-largest stable coin, the US gold coin (USDC), may just be in the wrong place at the wrong time.

The location is Silicon Valley Bank of America (SVB), a commercial services bank with $209 billion in assets. USDC foreign investor Circle deposits $3.3 billion of capital reserves here for deposit.

The current situation is that annual interest rates have risen sharply, and institutions like SVB that have been collecting short-term deposits to buy long-term assets have had an impact.

During this regrettable period, the USDC chose to abandon its peg to the dollar, falling to $0.85 (at the trading center) before warming to $1.00 on Monday, March 13th. This is also the representative of the stable system that many people think is based on the provisions of the law, and it should also be the most transparent, most compliant and most frequently audited coin.

An unpredictable turning point?

Timothy Massad, a researcher at Harvard University's Kennedy School of Government and former president of the Foreign Commodity Futures Trading Federation (CFTC), told Cointelegraph that irony means that the area that is supposed to be the safest and most stable foreign exchange trading reserve is decoupled from the dollar. "but it's only a temporary problem, not a sign of a fundamental design problem," he added.

Even so, decoupling from the dollar is still a serious matter. Buvaneshwaran Venugopal, a tenured professor of finance at the University of Central Florida, told Cointelegraph: "when the stable currency loses its peg, it loses its purpose of existence-to give relatively stable use value between the login password and the legal world." Decoupling worries the current total and hidden investors, which is seen as not conducive to the choice of login passwords.

Some people think that this is an extremely worthwhile thing. After all, the last time a bank as big as SVB insured by the Federal Deposit Insurance Corporation (FDIC) failed in 2008.

Ajun Abraham, a US partner at McDermott Wino Emory, told Cointelegraph: "before bank crowding, it was powerless for many people to have it." "part of the key is that the banking partners in the login password area are usually some of the riskiest banks. Circle is likely to have no choice in some of the larger banks, which have a high degree of personal data security.

Long-term adverse effects

Decoupling from the US dollar has caused a series of problems with USDC and stablecoin, as well as a wider range of digital currencies and blockchain markets.

Stablecoin, the company's headquarters in the United States, will now lose to field leader Tether, an offshore account coin that maintains a peg to the dollar during the economic crisis.

Is the decoupling of USDC a "one-off" phenomenon, or does it expose the basic shortcomings of a smooth approach?

BTC (BTC), ethernet (ETH) and other digital currencies have shown malleability during the bank downturn, while some banks have lost track of long-term stable lending. And what else can be done to ensure that there will be no other price cuts in the future?

Massad added: "some people will emphasize that this is the reason that does not encourage the development and design of stable currencies, while others tend to say that the vulnerability of large and medium-sized banks is the main reason why we have to stabilize currencies." He believes that none of these views are very accurate. What is needed now is a full range of banking and stable and strict regulation.

'investors are likely to lose confidence in the whole stable investment industry of USDC for a short time, but in the long run, I don't think it's easy to have a negative impact, 'Mr. Abraham said. Even so, Abraham showed that such things revealed embarrassing "financial accounting" at the Circle level, adding:

"keeping nearly 10 per cent of the overall risk reserve in a bank that will not be seen as' too big to fail'is an adventure for any company, let alone those that claim to keep a peg to the dollar for a long time."

Even so, Abraham expects Circle to learn from this journey and end up better and better than ever before. This anxiety may cause Circle to take a step back, considering creating better controls so that he is less vulnerable to extreme counterparty risk again. This will make USDC, an already great product, more and more secure.

It seemed to Abraham that USDC was never really in danger of life and death. Even if the US government does not intervene in "applicable" depositors, "USDC will be fine. After all, its savings started to move out before FDIC took over." Abraham showed that the multibillion-dollar reserves held by SVB would have to be deposited in another bank by March 13 anyway.

Bitcoin and ethernet show scalability

Fortunately, Circle survived, data encryption support such as Bitcoin and Ethernet Square performed very well, while the banking industry infection flocked to other organizations such as signatory banks, BNP Paribas and BNP Paribas.

"are people surprised that the price of the top stable currency [USDC] can be immediately reduced by ~ 10%, but there is basically no chain reaction to the prices of other coins? Especially because it will be extremely central to many defi deals, "Joe Weisenthal wrote on Twitter." Ark Invest's Nienfeld even praised the digital currency as a safe haven during the banking crisis.

But others are more cautious. Abraham stressed that BTC and ETH had gradually fallen since March 10th and earlier that weekend. If the US government did not intervene in the application of US depositors, HSBC did not recycle the US bank, and when the sales market opens again on Monday, there could be great pain in the field of login passwords.

Others think that USDC does most of everything right; it's just bad luck. Vijay Ayyar, senior vice president of corporate development and global expansion at LUNO, told Cointelegraph: "USDC's foreign exchange reserves are mainly made up of cash short-term securities, 80% of which are short-term securities, which should be the safest asset." So if you take a closer look at what's going on, there's nothing wrong with USDC in the first place.

In Ayyar's view, it is more urgent to "have a complete reserve dollar calculation system to help us solve the systemic risks in the current grade system."

What does this mean for raising red deer?

Overall, what does this kind of decoupling mean for stablecoin? Does this confirm that they are not really smooth, or is it an one-off thing that USDC happens to be in the incorrect Fed meeting member bank? It can be said that one of the lessons learned is that relatively stable viability may not be related to reserves. Counterparty risk must also be taken into account.

"stable investments backed by Fiat cars have a lot of intertwined potential risks," Century Lion Clements, a tenured professor of law at the University of Calgary, further explained in an interview with Cointelegraph.

So far, most of the discussions about the risks of circulating currencies such as USDC have focused on the composition, quality and liquidity of reserves. This is a real problem. However, this is not the only worrying issue.

'at this stage of the dilemma, many people are surprised by the imbalance in SVB's holding period and the lack of annual interest rate hedging and Circle's openness to the bank, 'Mr. Clements, said.

Other factors that are likely to disrupt relative stability include the collapse of foreign investors and the collapse of risk reserve fund custodians, Mr Clements, suggests. The views of investors should also be taken into account-especially in the era of social media. Recent events show that "investor anxiety about the failure of reserve fund custodians is likely to catalyze a decoupling because of the actual redemption of stablecoin issuers and the sale of stablecoin on secondary data encrypted asset trading platforms," he said.

As Venugopal of the University of Central Florida used to say earlier, inflation has eroded the confidence of cautious new and potential investors. This further delayed the widespread adoption of decentralized financial sector use, Venugopal said, adding:

"the good thing is that such safety incidents can trigger a lot of checks by investor groups and regulators-if the chain reaction is enough."

Why tie the rope?

What if the exchange rate of the US dollar remains the same for all periods of hardship? Is there a distance between Tether and USDC in the search for a relatively stable primacy? If so, isn't it ironic because Tether has been criticized for its lack of clarity in comparison with USDC?

LUNO's Ayyar said: "Tether has previously been suspected of conducting financial audits from its overall shareholding, which has also led to previous decoupling." Therefore, I don't think this incident can prove that one side is better than the other.

Kelvin Low, a law professor at the University of Singapore, told Cointelegraph: "logging in to the password market has always been full of irony." For an ecosystem that is touted as decentralized according to the design, the vast majority of industries are relatively highly centralized intermediaries. Tether just feels better than USDC, because all its shortcomings are hidden out of sight. But Mr. low added that shortcomings can only be hidden for so long, "as the FTX story proves."

But after dodging a bullet last week, USDC is likely to expect a different approach. "I doubt that USDC will look to strengthen its business by basically diversifying its reserve fund custodian, depositing its reserves in a larger bank, adopting stronger holdings risk control and annual interest rate hedging, and / or ensuring that reserves are adequately covered by FDIC insurance," says Mr Clements, of the University of Calgary.

A painful lesson learned

Can you get more general views from the events around you? Abraham replied, "there is no completely relatively stable stable system, and SVB just reflects this." Like others, he still feels that USDC is a relatively stable and stable system. But, he added:

"making it (USDC) experience 10 per cent decoupling first-hand shows the limitations of the stablecoin asset class as a whole."

Looking forward to the future, "it is also important for relatively stable investors to keep track of what banks have and how much risk reserves they have," Clements, said. "

Low, a login password skeptic, says recent events have shown that, regardless of the concept of his design, "every smooth coding is vulnerable to risk, in which algorithmic stable coding should be the most problematic." But even if the property guarantee stabilization fund is required by law, it is vulnerable to risk-in this case, counterparty risk.

In addition, stable investors "still face the risk of losing their self-confidence." The same applies to digital currencies such as BTC; although BTC does not have counterparty risk or decoupling problems, BTC is still low. "when we lose confidence in Bitcoin, the Bitcoin market is [still] vulnerable to downward pressure on the economy."

Ayyar shows that USDC already has different banking partners, with only 8 per cent of its assets in SVB. "therefore, it is not the solution." He suggested that people should consider longer-term issues, including the implementation of comprehensive consumer protection measures, rather than relying on the splicing method at this stage.

As for Massad, the former CEO of CFTC, she said in an interview with Cointelegraph that reform and innovation must be carried out at the same time to stabilize the lending currency and banking industry:

"We should have a strict regulatory framework for stable enterprises and improve strict supervision of small and medium-sized banks-which may also require stronger regulation, or stronger regulation, or both."