Over the weekend, the unpegging of two major stablecoins, USD Coin (USDC) and Dai (DAI), from the US dollar sparked a loan repayment frenzy on decentralized lending protocols Aave and Compound. Borrowers saved a total of more than $100 million in the process.
The decoupling was triggered by the collapse of Silicon Valley Bank on March 10, raising concerns about USDC reserves being locked up at the bank. This led to the USDC price falling to a low of $0.87 on March 11. MakerDAO’s DAI stablecoin also briefly depegged, hitting $0.88 on the same day.
According to a report from digital asset data provider Kaiko, more than $2 billion in loan repayments were made on March 11, with more than half of them in USDC. Another $500 million in debt was paid in DAI the same day. However, payment activity slowed as both USDC and DAI began to return to their pegs.
The decoupling of USDC and DAI led to borrowers saving a significant amount of money. Blockchain analytics firm Flipside Crypto estimates that USDC debtors saved $84 million, while those using DAI saved $20.8 million. This is because borrowers were able to repay their loans while stablecoins were unpegged, allowing them to take advantage of lower prices.
The decoupling also had broader implications for the DeFi ecosystem. The Kaiko report noted that price dislocations created myriad arbitrage opportunities across the ecosystem and highlighted the importance of USDC.
The USDC decoupling also prompted MakerDAO to reconsider its exposure to the stablecoin, as crypto projects that incorporated DAI into their tokenomics suffered losses due to a chain reaction.
However, Circle’s USDC began its climb back to $1 after CEO Jeremy Allaire confirmed that its reserves were secure and the firm had new banking partners lined up, along with government assurances that SVB depositors would be compensated. According to CoinGecko data, USDC was at $0.99 at the time of writing.
Overall, the decoupling of USDC and DAI from the US dollar resulted in significant loan repayments and savings for borrowers. He also highlighted the importance of stablecoins in the DeFi ecosystem and the need for proper risk management in the use of these assets.