INTRODUCTION

The collapse of the Sillicon Valley bank sent shockwaves throughout the tech world and crypto markets in particular as the industry's most favoured bank in the US went insolvent. One of the casualties in the collapse was USDC, one of the largest stablecoins by marketcap developed by Circle. Following an anouncement by Circle confirming that the bank held $3.3bn worth of their $40bn pegged reserves of USDC at the bank, this led to the stablecoin depegging. The effect quickly spread to the Curve 3 Pool, one of the largest liquidity pools featuring USDC, on the Curve Decentralized Exchange (DEX) which suffered an imbalance as a result. The Curve 3 pool, was designed to support stablecoin trades across three tokens USDT, DAI and USDC maintained at equal balances and had a TVL valued at over $510millon before the collapse. Immediately after the announcement, the share of USDT in the pool began to drop reaching as low as $5.8million, similar to DAI holdings which initially rose before falling to as low as $29million. The combined value of the pool dropped to $380million, highlighting sudden capital flight from the pool. However, given the current state of the Curve 3Pool, the has been a reverse increase in DAI volume. this is still a developing story and it is still early to determine the longer term effects of the depeg on the broader DeFi Ecosystem.

BACKGROUND

Curve: Curve is a decentralized exchange protocol launched in 2020, aimed at enabling trading of stablecoins with low slippage and fees. It has since become increasingly popular as a go to for stablecoin trading pairs.

3pool: The Curve 3pool is one of Curve's most popular liquidity pools which allows for the trading of three stablecoins: USDT, USDC, and DAI. The 3pool is designed to maintain a stable value relative to the US dollar, at a relative ratio of 1:1:1 for all 3 assets, with a goal of providing traders with a reliable and low-risk option for exchanging stablecoins.

USDC: USDC is one of the most popular stablecoind and crytpocurrencies by volume. It is a stablecoin pegged to the US dollar, meaning that its value is designed to remain stable relative to the US dollar. USDC is widely used in the cryptocurrency space as a stable alternative to other volatile cryptocurrencies.

Depeg: Pegging is a term used to describe the process of maintaining a stable value relative to a fiat currency like the US dollar. This is typically achieved through the use of collateral and other financial instruments to ensure that the value of a stablecoin remains stable, regardless of market conditions. Depegging is the deviation of the value of said asset from the price of the asset it has been pegged to .

IMPACT OF STABLECOIN PRICE DEPEGS ON THE CURVE 3 -POOL