By Curtis Dye
According to recent reports, Circle’s USD Coin (USDC) has depegged, which has led Changpeng ‘CZ’ Zhao, the CEO of Binance, to fear that conventional banks threaten stablecoins that are normally linked 1:1 with fiat currencies such as the US dollar.
Traditional banks risky for stablecoins
The de-pegging of USDC occurred after Circle said on March 11 that Silicon Valley Bank did not process its request to withdraw $3.3B worth of cryptocurrency. The crypto reacted to this news by liquidating their USD Coin holdings, ultimately resulting in the loss of the peg maintained by the stablecoin. CZ has pointed the finger of blame at conventional banks for raising the dangers associated with stablecoins due to the direct participation of SVB in the destabilization of USDC pricing.
Although stablecoins such as USDC are intended to stabilize their prices, their stability primarily depends on the backing of fiat currencies or other assets. Since conventional banks are involved in this process, there are worries regarding the dangers that stablecoins face. According to CZ’s statements, conventional banks may need to be qualified to manage the complexity of the cryptocurrency market, posing a danger to the stability of stablecoins.
Also read:Stablecoin risks demand regulation
In reaction to the USDC de-pegging, Circle indicated it is working on a solution to the problem. The corporation has also informed its customers that business would continue as normal. The de-pegging of USDC, on the other hand, underlines the potential hazards involved with stablecoins and the necessity for stronger regulation and control in the cryptocurrency sector.
The de-pegging of USDC has caused shockwaves to be sent across the crypto market, drawing attention to the dangers of stablecoins when conventional institutions back them. It is still being determined how the cryptocurrency industry and stablecoins will develop over the next several years as the sector continues struggling with the difficulties mentioned earlier.
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