Traders who have utilized decentralized finance (DeFi) protocols to speculate on a potential increase in value of USDC over the weekend face the risk of losing significant amounts of money if the stablecoin once again loses its peg to the US dollar this week. According to information provided by DeFi Llama, there are positions worth $70.8 million that can be liquidated if the value of USDC drops to anywhere between $1.00 and $0.895. Two recently completed positions on the Compound interest protocol are worth $20.7 million and $15.4 million, respectively. On Saturday, the value of USDC dropped to a low of $0.88 due to Circle, the company behind the stablecoin, announcing that it had $3.3 billion invested in troubled bank Silicon Valley Bank (SVB).
On Sunday, Circle announced that the $3.3 billion in question would be available at U.S. banks on Monday, which helped alleviate concerns about a possible suspension in redemptions. Circle has a system that enables users to exchange one USDC token for one U.S. dollar. Although USDC appears to have regained its peg on Monday and the immediate panic has subsided, one of the two Compound positions valued at $20.4 million will be liquidated if USDC's value drops to $0.985, while the other position will be liquidated if USDC's value drops to $0.925. In Compound, liquidations occur when a user borrows an asset and the value of the borrowed assets becomes greater than the collateral. In this situation, users may borrow other cryptocurrencies, such as other stablecoins, by utilizing USDC as collateral.