cUSD peg stability is crucial for its adoption and growth in the real economy. What is being done about the ongoing biggest depeg in cUSD’s history? arguable this is caused by USDC and DAI depegging following the former’s exposure to Silicon Valley Bank. What are the mechanisms to deal with this sort of emergency situation?
The Mento Labs team is actively monitoring the situation. The Mento reserve is 2.5x overcollateralized, with different assets in the reserve (https://reserve.mento.org/). Despite both, USDC and DAI being under continuous pressure, overcollateralisation and diversification in the Mento reserve support the Mento assets. Given the market situation there is temporary pressure on cUSD, we are coordinating with key ecosystem partners on this.
IMO SVB’s failure isn’t the big issue, it’s just a symptom.
One reason the peg of all the stable coins are at risk, and that adoption and growth are low, is that they aren’t yet solving problems that the average Joe in some real world situation has.
Another is that stable coins are being advertised as something they aren’t, fully liquid like a US dollar or EURO or…
All the average work-a-day Joe’s with money at SVB will have access to 100% of their US dollars on Monday, period. The FDIC and the US government guarantee that every average Joe will be fully liquid and able spend every last dollar they had at SVB or Silvergate on gas, groceries, and rent.
No stable coin has that backing or offers that guarantee.
For the average Joe USDC is effectively fully liquid within the ecosystem where it operates (various blockchains). The fact that the entity minting USDC doesn’t just have it 100% available to redeem 100% of the time is no different to putting fiat dollars into a brick and mortar bank.
The 1:1 liquidity in both USDC and federal dollars only really breaks down beyond a certain value threshold. Could you redeem 7-figures of federal dollars from your local bank at the drop of a hat?
I feel that stablecoins are solving an amazing monopolistic problem: the fact that SWIFT/Western Union/(name your entrenched gatekeeper) are essentially giant reconciliation engines making sure that localized ledger A matches localized ledger B, and they make a fortune pretending that in 2023 this work still needs to exist.
There’s still a huge trust and adoption gap preventing it from taking off however. It’s the only thing I can understand that explains why one or the other mobile payments app hasn’t made meaningful bites into any of the traditional competitors. User experience and key management are probably larger hurdles than I imagine also (since I’m in the space, it’s second nature by now).
USDC is different in that the entire ecosystem is a bit like ‘Airline Miles’, only accepted by the airline.
It is very different, the FDIC is proving that in real time.
It is very different in that I can pay all my bills in the real world with fiat money
Having short term depegs (esp over weekend when regular banking doesnt work) while there is a pretty serious financial issue going on in rest of the world/ecosystem isn’t really a huge issue.
Main questions should always be:
#1: is reserve over collateralized?
#2: is the peg trending in the correct direction (i.e. is the algorithm working)?
cUSD actually managed to recover faster than USDC which is pretty surprising to be honest.
You can see that pretty much all stablecoins are slightly depeged (in either positive direction like USDT or negative direction like cUSD) right now: Top Stablecoin Tokens by Market Capitalization | CoinMarketCap
Yeah true, I guess I’m conflating the term “liquid” to also mean (for average Joe) “exchangeable freely for a certain amount of buying power”.
Given that the normal user is not redeeming institutional-level amounts of USDC for a federal dollar deposit to their account, and are simply using it as a stable unit of account in the large but walled garden of the blockchain world, I would argue USDC is effectively very close to a federal dollar stand-in. I’m happy that someone, somewhere, can redeem USDC in large scale quantities if they need, and happy that I will hopefully never have to.
Honestly I don’t know why other products (like Bitcoin Suisse’s stable Swiss Franc) haven’t blown up. The US has proved to be a massive anchor weighing the entire industry down recently.
While the USA is close to being able to transact completely electronically, that has taken many years, credit cards were a very fresh idea 50 years ago, ATMs and Debit cards even younger.
I just spent 5 months in Mexico, it simply isn’t possible to go through a normal day of interactions with local stores and vendors and restaurants at the human level without fiat. For example the guy that butchers the chickens I ate doesn’t use any electronic payments, sells enough chickens to support his family just fine, all fiat period.
There is no cultural or economic driver for him to even take credit or debit cards let alone crypto based payments.