Crypto's On-Ramp Ran Right Into SVB's Brick Wall

Stablecoins are failing to live up to their billing, again. After last year’s Terra blowup, bouts of market stress at Tether and a regulatory clampdown on Binance’s BUSD, now Circle’s USDC —one of the stablest of stablecoins — is scrambling to calm panic over its exposure to now-defunct Silicon Valley Bank, where it had $3.3 billion of reserves. Even if it succeeds, regulators and banks have plenty of reason to stay on their guard.

As the name suggests, the job of a stablecoin is to behave across crypto markets like a digital dollar without actually being one. The benefits for traders are low volatility for tokens operating outside of the rules of traditional finance and offering access to new and very racy forms of crypto lending. The risks are myriad: Investor losses if the dollar-peg breaks, crime including money laundering, and financial instability given the market’s $136 billion size and its rising interconnections with TradFi.