Long $USDC on Bybit, collect 100%+ APY. | PLAY CONCLUDED | USDC Re-pegged to $1.00
Circle, (creators of USDC) had exposure to Silicon Valley Bank, which has now collapsed.
This has the market panicking, trying to exit USDC and/or short USDC.
On Bybit, you can short USDC using USDT as collateral. Because so many people are trying to short USDC, the funding rate has gone deeply negative. (-112% at the moment), meaning shorts are paying 112% apy to longs.
By longing USDC, you stand to benefit by earning 112% apy (which may fluctuate) on your long position, as well as any appreciation should USDC return to peg at $1.00.
We see that approximately 26% of the backing for USDC is held as cash at reserve banks, with the other 74% in short-dated bonds.
Circle claims to hold funds in 7 banks including Silvergate Bank and Silicon Valley Bank.
Circle has $3.3B exposure to SVB which would mean there is potentially a ~7.5% hole to account for, meaning we could reasonably assume USDC is 92.5% backed and a long-term de-peg below $0.925 is unlikely.
This also assumes that 100% of the cash kept at SVB is completely lost, when in reality it’s likely they are able to get much of it back.
Lastly, short-term treasury yields are elevated at this point in time, meaning Circle is likely earning 3%+ on the $30B+ they have in bonds. If the hole is less than $1B - $2B, they can very likely plug it over time.
Strategy: Take a long position on USDC if the peg drops to 0.93 - 0.94. Keep a liquidation level at your desired threshold, knowing a long-term peg below ~$0.925 is somewhat unlikely. This strategy greatly benefits from a return to peg.
⚠️ This is considered a HIGH risk play. Note that Bybit also charges fees on trades that will affect profitability. Higher leverage will incur higher trade fees.
Risks:
- More banks that Circle has funds in go down.
- A bank run on USDC creates delays in processing, causing a deeper de-peg.
- Temporary panic causes USDC to de-peg more than it rationally should.