Over the past two years, the USDC and DAI dollar peg ship has been going up and down.
A recent study by S&P Global analysts indicates that among top stablecoins, USD Coin (USDC) and Dai (DAI) have exhibited a higher tendency to lose their dollar peg. These findings could have significant implications for traders and investors relying on stablecoins for low-volatility assets.
According to a September research paper written by Dr. Cristina Polizu, Anoop Garg, and Miguel de la Mata, five major stablecoins were scrutinized for their performance and stability: Tether (USDT), Binance USD (BUSD), Paxos (USDP), USDC, and DAI.
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The research disclosed that over two years, USDC and DAI saw more frequent and lengthy periods below the $1 peg than their counterparts, USDT and BUSD.
In one particular incident, USDC fell to as low as $0.90, remaining there for 23 minutes, while DAI experienced 20 minutes below the $1 mark. In contrast, Tether slipped below $0.95 only momentarily, and BUSD maintained its peg, never dipping below $0.975 between June 2021 and June 2023.
Frequent occurrences of depegging are a cause for concern for USDC and DAI when compared to Tether and BUSD. The researchers indicated that short-lived de-peg events could be classified as “noise,” but the persistence and depth of depegging were far more prevalent in USDC and DAI.
Significant events like the collapse of Silicon Valley Bank in March 2023 affected USDC disproportionately. At that time, Circle, the issuer of USDC, held $3.3 billion of its $40 billion in USDC reserves with the bank. The event also impacted MakerDAO, which had over $3.1 billion in USDC as collateral for DAI, leading to DAI's depegging as well.
Dr. Polizu and her team summed up their analysis, stating:
Maintaining the peg and a stabilization mechanism requires good governance, adequate collateral and reserves alongside liquidity, market confidence, and adoption.
The findings by S&P Global analysts cast light on the less-stable nature of USDC and DAI compared to Tether and Binance USD. As stablecoins play an increasingly pivotal role in cryptocurrency markets, their stability becomes a critical concern for traders and investors. These findings could steer preferences and strategies within the cryptocurrency community.
