Other Macro Credit Ramifications

Stablecoin Depegging Highlights DeFi's Exposure To TradFi Risks

S&P Global Ratings believes that the temporary depegging of two major stablecoins following SVB's failure demonstrates inherent risks in these assets.

Stablecoins are crypto assets that are intended to maintain their value relative to a fiat currency.

Yet after SVB's collapse, U.S. Dollar Coin (USDC) and DAI temporarily lost their peg to the U.S. dollar by 13%, before subsequently rebounding.

Meanwhile, regulators closed down Signature Bank, a key lender to crypto businesses, which followed the liquidation of Silvergate Bank on March 8, 2023.

In our view, these events highlight the interconnectedness between the traditional and decentralized financial systems (TradFi and DeFi), and that contagion of risks has the potential to go both ways.

It remains to be seen whether the failure of SVB, Silvergate, and Signature Bank will affect the wider crypto ecosystem, particularly if other banks are reluctant to step in to serve it.

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