Investors have begun to offload their assets on centralized exchanges (CEXs) and are now moving them to decentralized exchanges (DEXs) since the collapse of Silicon Valley Bank (SVB).
According to blockchain analytic firm Chainalysis, the collapse of SVB and Silvergate was crucial to the cryptocurrency sector. This is specifically because they were the largest provider of banking services to digital asset companies in the United States.
As is the case in most situations, Chainalysis points out that outflows from CEXs are often on the high side when market turmoil sets in. In this case, users became worried that they would lose their funds similar to the case of the FTX exchange implosion. Therefore, when talks began to make rounds that SVB may be sliding into insolvency, especially after its recently acquired government bonds were plummeting, customers began to withdraw their funds from the bank.
Data shows that on an hourly basis, the transfer of funds and assets from CEXs to DEXs increased to almost $300 million on March 11th. This is barely a day after SVB was closed down by a California regulator. On the same day, the CEXs outflow reached $1.2 billion which was later used for trade on DEXs.
However, another blockchain analytic firm known as Token Terminal also mentioned that the hike in the daily trading volume for large DEXs was only for a short time. This was the same thing that happened during the FTX implosion.
Centralized Exchanges and Firms Impacted by SVB
Circle, the issuer of the U.S. dollar-pegged stablecoin USDC is the major client of SVB that has been affected by this turmoil.
Based on a Twitter post by Circle, the crypto firm had $3.3 billion tied up in the troubled SVB and this represents 8% of the total reserve backing the USDC. Not too long after, the USDC token was de-pegged from the U.S. dollar and remained under the $1 benchmark.
Its de-pegging, however, did not stop holders from transferring the stablecoin, instead, it is one of the top assets that is being transferred.
Many crypto trading platforms began to liquidate their assets after the de-pegging of USDC. American cryptocurrency exchange Coinbase, BUSD issuer Paxos and Celsius Network have also announced exposure to Signature Bank, another beleaguered financial institution.
Crypto-friendly Silvergate Bank was the first to wind down its operations and liquidate its assets.
