Decentral Block Post

The death spiral of the Terra (LUNA) and TerraUSD (UST) ecosystem served as a catalyst to the 2022 bear market — causing losses in the millions, damaging investor sentiment and intensifying the regulatory spotlight over cryptocurrencies. However, the recent depegging of Circle’s USD Coin (USDC) led Binance CEO Changpeng ‘CZ’ Zhao to believe that traditional banks are a risk to stablecoins that are usually pegged 1:1 with fiat currencies, like the US dollar.

On March 11, Circle disclosed that Silicon Valley Bank (SVB) did not process its $3.3 billion withdrawal request. The crypto market responded to the revelation by selling off their USDC holdings, causing the US dollar-backed stablecoin to lose its peg. Given SVB’s direct involvement in destabilizing USDC prices, CZ blamed banks for increasing the risks of stablecoins.

Supporting CZ’s sentiment, a community member pitched the idea of a crypto-backed stablecoin. CZ responded by highlighting the defunct algorithmic stablecoin launched by Do Kwon, saying:

“Do Kwon actually had the right idea, but just failed miserably on execution.”

Moreover, according to CZ, fiat currencies — in themselves — are a risk without getting crypto into the equation.

Several USD Coin (USDC) holders have fled to other stablecoins since March 10 amid fears surrounding its solvency following the disclosure that a small portion of USDC's collateral was held at Silicon Valley Bank.

However, not all of them had success during panic selling. One user paid over 2,000,000 USDC to receive $0.05 of Tether (USDT) by dumping a large amount of 3CRV (DAI/USDC/USDT) into USDT.

KyberSwap aggregation router was used in the transaction. Kyberswap is a decentralized exchange (DEX) that aggregates liquidity from several DEXs. In a postmortem, the protocol team explained that "since the market was undergoing a volatile period, all routes failed at estimating gas. The rate strongly fluctuated & only 0x’s route was successful but with a very poor rate."

After confirming the swap at 0x's rate in a pop-up, a bot detected the opportunity and gained 2,085,256 USDC from that Univ2 pool. The protocol is in talks with the bot creator, the bot user and third parties to assist with funds recovery.

Also moving funds to other stablecoins, Tron founder Justin Sun reportedly withdrew 82 million USDC using the decentralized finance protocol Aave v2 and swapped it for Dai (DAI), worth nearly $75 million.

The Cosmos community has approved a vote to add “replicated security (RS)” to its chain, with 99.99% of votes in favor of the motion. The much-awaited upgrade is set to go live on March 15, 2023, with the v9-Lamba upgrade. 

RS is the first version of Cosmos’s Interchain Security (ICS) feature, allowing blockchains in the Cosmos ecosystem to share validation resources for improved security.

Only protocols approved by Cosmos governance will be added as consumer chains in the upcoming update. Eight consumer chains are potential candidates for selection, including Neutron, PolymerDAO, Duality, Stride, Simply Staking, FairBlock and Comdex.

Cosmos’s interchain security could start a virtuous real yield cycle

The Replicated Security feature will distribute up to 25% of the consumer chain fees to Cosmos Hub stakers. The protocols can also allocate a portion of token inflation and revenue streams to Cosmos (ATOM) stakers.

The ICS implementation allows consumer chains to focus entirely on the growth of the network’s economy, as Cosmos Hub’s validators provide reliable security against 51% attacks and double-spending. This will bring additional yield to ATOM stakers and allow consumer chains to optimize for growth.

Silicon Valley Bank (SVB) collapse on March 10 has sparked fear, doubt, and uncertainty (FUD) across the crypto community, leading many to come back to crypto roots, reviving the Bitcoin white paper published just weeks after the Lehman Brothers meltdown in 2008. 

"There’s an entire generation of builders who only read about Lehman and the financial crisis and scoffed at Bitcoin. Now, their eyes are wide open. Welcome new friends," stated on Twitter Ryan Selkis, founder and CEO of Messari. 

Approximately six weeks after the dramatic collapse of the American bank, Satoshi Nakamoto released the now famous white paper that paved the way for the emergence of the Bitcoin network.

Some people blame the SVB failure on the rising interest rates in the United States. The Federal Reserve increased its benchmark rate over the past year to more than 4.5% - the highest rate since 2007. In January, the inflation rate in the US was 6.4%.

Many crypto and tech companies are affected by the collapse of Silicon Valley Bank. USD Coin (USDC) issuer Circle revealed it could not withdraw $3.3 billion of its $40 billion reserves from SVB, leading to a sell-off and the stablecoin's price dropping below its $1 peg.