Crypto Market Depth Takes A Hit: Kaiko Report

The market depth of major cryptocurrency exchanges, including Gemini, Coinbase, Binance.US, and Binance Global, has been affected due to USD payment channel disruptions and crypto bank failures, according to a recent report by Kaiko. 

The research showed that Gemini’s market depth fell by 74%, Coinbase by 50%, BinanceUS by 29%, and Binance Global only by 13%. This decline in the USD fiat entry could result in more volatility in the cryptocurrency market.

USDC De-Peg & Crypto Market Impact

In their blog post, Kaiko researchers provided a detailed analysis of the chaos that gripped the crypto markets in the wake of Silicon Valley Bank’s collapse. The post-mortem report is divided into three parts: USDC’s de-peg and its impact on the market, the state of crypto liquidity, and Monday’s market recovery.

The report revealed that after the collapse of Silicon Valley Bank, news emerged that Circle, an issuer of the USDC stablecoin, held $3.3 billion of reserves in the bank, leading to fears that the stablecoin was no longer fully backed. 

It sparked chaos in both centralized and decentralized markets. The report explained that USDC is relatively illiquid on centralized exchanges, but these exchanges played a significant role in the weekend’s market chaos. Traders had only one thing in mind: where to liquidate their USDC holdings.

There were only a few USDC-USD trading pairs on CEXs, which determined the dollar exchange rate. Despite hitting an all-time high of $600 million, the order books couldn’t handle the influx of sell volume, resulting in a plummeting USDC exchange rate. Most traders preferred offshore exchanges with USDC-USDT pairs, but Binance had delisted all USDC trading pairs. 

However, Binance re-listed the USDC-USDT pair by midday Saturday, causing USDC to trade at a discount. Trade volume for USDC-USDT pairs hit an all-time high of $9.9 billion, resulting in a premium Tether trade compared to both the dollar and USDC due to the overwhelming number of sales.

The report links illiquid centralized spot markets, USDC derivatives, and viral screenshots to the de-pegging event, which triggered a narrative frenzy similar to a bank run in DeFi.

USDC’s de-pegging hit DeFi hard, as the stablecoin provides stability to lending protocols and serves as a significant reserve for decentralized stablecoins. This weekend, Uniswap and Curve saw record trade volumes as traders swapped USDC for ETH and other stablecoins, including USDT.

Nevertheless, the report warns that the crypto market is vulnerable to disruptions in USD payment channels and crypto bank failures, which could cause increased price volatility. It highlights the importance of ensuring that stablecoins are fully backed and that decentralized oracles should be used to determine liquidation levels.

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