How Stablecoin Traders Played the Silicon Valley Bank Collapse and Won Big

  • SVB Financial’s (SIVB) Silicon Valley Bank collapse prompted much turmoil in the crypto world.
  • Like tech companies, many crypto companies were clients of the bank.
  • Though exposure and contamination made for woes between USD Coin (USDC-USD) and Dai (DAI-USD), traders were able to make something of the price drops.
Silicon Valley Bank - How Stablecoin Traders Played the Silicon Valley Bank Collapse and Won Big

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The wipeout of SVB Financial’s (NASDAQ:SIVB) Silicon Valley Bank touched all edges of the investing world. It decimated bank stocks due to contagion fears. It sent tech stocks reeling due to their close relationships with the bank. And it sent fear into the hearts of investors around whether we are being plunged headfirst into a fiscal crisis. The government is trying to get a handle on the situation and keep investor confidence. But if there’s anybody who seems to have come out on top of the news, it could very well be stablecoin traders.

When Silicon Valley Bank began its speedy tumble into non-existence, the crypto space was looped in for the ride. Of the bank’s many clients, a great number of sizable crypto companies could be counted. Meanwhile, the crypto industry has been in obvious decline, as is particularly the case with stablecoins. Indeed, stablecoins, though not made to increase or decrease in price, have been seeing volatility of their own kind.

Regulators are applying the squeeze to these assets, more so than in years past. Binance (BNB-USD) is in a heap of trouble with the U.S. Securities and Exchange Commission (SEC) over its flagship stablecoin. The SEC has ordered the company to halt the minting of Binance USD (BUSD-USD), one of the world’s most used stablecoins as of early 2023. This action foreshadows trouble for other stablecoin companies and has put the whole crypto niche against the ropes.

Circle, a company responsible for USD Coin (USDC-USD), another of the world’s largest, continues the hardship this week. The company is one of the closest crypto clients to SVB. But, luckily for some of the coin’s holders, the bad news was leveraged for some savvy gains.

Silicon Valley Bank Causes Turmoil for Stablecoin Market

Silicon Valley Bank counts Circle as just one of its bevy of clients. As Circle disclosed shortly after the failure of the bank, it holds at least some of its mass of reserves with Silicon Valley. So, it is directly affected by the events of last week. And, it counts five other banks as its custodians, as well. With the contagion fears sweeping the market, Circle and its clients must fear hardship to come still.

This has ultimately led the USDC crypto down a volatile path. Shortly after disclosing its exposure to the bank, Circle’s USDC dropped quickly. The stablecoin dropped a whopping 12 cents, bringing prices from its $1 peg to 88 cents. And, it triggered volatility across other stablecoins, too. Although it doesn’t hold any exposure to SVB, stablecoin Dai (DAI-USD) also de-pegged, dropping to about 90 cents.

Savvy Traders Leverage Stablecoin De-Pegging for Cheap Loan Reimbursement

Under no circumstances is a stablecoin meant to leave its peg, and the projects saw to immediately righting this volatility. However, there were a number of crypto traders who thought quickly on their feet. These traders turned what was the beginning of an ongoing disaster into a prosperous moment.

Stablecoins are popularly used for taking out decentralized loans on platforms like Aave (AAVE-USD) and Compound (COMP-USD). As with other loans, one is in debt to their creditor and must pay back what they borrowed. Well, in the moments in which USDC and DAI de-pegged, a number of traders decided to repay their loans at a discount.

CoinTelegraph reports that $2 billion in loan repayments took place during this period. That’s a massive increase in daily loan repayment averages. Over 75% of these repayments were paid in USDC and DAI. So, for those quick-witted enough, there is evidence that the SVB meltdown was able to be leveraged for gains.

On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Brenden Rearick is a Financial News Writer for InvestorPlace’s Today’s Market team. He mainly covers digital assets and tech stocks, with a focus on crypto regulation and DeFi.

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