How do we deal with the "black swan"?

The comprehensive and systematic decoupling of stablecoins caused by the collapse of Silicon Valley Bank is undoubtedly a "black swan" event.

Previously, I thought that after the FTX crash, even if there was another major accident in the crypto ecosystem this year, we could guess who the protagonist would be, so it was not considered another "black swan". But in any case, I could not have guessed that the stablecoin would be decoupled not long after.

So when these “black swan” events occur, what methods can we use to protect ourselves?

I will try to find out the cause of the incident as soon as possible and analyze whether it is irreversible or just an unexpected fluctuation. If it is irreversible, I will not hesitate to get rid of these risks as soon as possible. If it is just an unexpected fluctuation, I will continue to observe.

Take the recent stablecoin depegging incident as an example. When USDC had problems and implicated DAI, since I only held DAI and believed that DAI's depegging was only temporary, I did not take any action and just continued to observe.

But if the price of USDC drops to $0.8 or even below, and remains at this price for several hours without rising, then I will first consider exchanging DAI for legal currency as soon as possible. If there is no such channel, then I will sell DAI and buy LUSD, Ethereum and Bitcoin in a diversified manner.

In the first option, the reason why I first considered exchanging DAI for legal currency (USD or RMB) is because I still want to keep the "stable currency", but I want to find a more "safe" stable currency. So legal currency is the only choice - because all stable currencies are ultimately anchored to legal currency.

In this case, I will only exchange fiat currency back into stablecoin after the risks are gone.

As a fallback, the reason why I only buy LUSD in stablecoins is because it is purely collateralized by Ethereum, so it has the least risk. I buy Ethereum and Bitcoin because I believe in their future.

In this case, I will continue to hold on to the LUSD, Ethereum and Bitcoin I bought until the risks are gone.

In addition, there is another idea. This idea believes that the decoupling of USDC is only temporary and it will eventually return, so it is even bold to buy at this time.

If this approach is reasonable, at least one of the following two conditions must be met:

One is that Circle as a company will be able to eventually pay off the write-down.

Second, if Circle does not have the money to pay for the write-down, the U.S. government will eventually lend a hand to rescue Silicon Valley Bank and get all depositors out of danger safely.

Regarding the first assumption, I think it was difficult for us to judge under the circumstances at that time.

The reason why people believe that Circle can still pay is that it only has a small portion of its money in Silicon Valley Bank, and most of its money is in several other large banks. And those large banks are assumed to be safe.

But the problem is that when several banks have already run into problems, how do we know that the risk will not be transmitted and how can we ensure that those so-called big banks are safe?

So the first assumption seems a bit far-fetched to me.

But for the second assumption, everyone is full of confidence. You can find a lot of reasons, the most convincing of which is that the US government will not indulge the technology industry to suffer such a blow, and will say that in the current US government desperately to ensure its high-tech status, it will not allow such a disaster to happen.

In fact, in my opinion, this is not that convincing.

First of all, the impact of the technology industry this time and the financial industry in 2008 on the entire system is different. If the financial industry is ruined, all industries will be depressed, and although the damage to technology is also an unbearable burden, its risks and impacts are temporarily controlled in local areas and within a certain range.

In such circumstances it is difficult to ensure that regulators will be so unhesitating in stepping in to help.

In fact, even when the US government was going to rescue the entire financial industry in 2008, then Treasury Secretary Paulson was struggling for a long time. Because for him, the action he was about to take was against the laws of the capitalist market economy: it was a belief deeply engraved in his bones - from his youthful student days to his later long-term career.

There was a photo taken at that time that vividly reflected his inner struggle and pain: he stood alone in a corner, not communicating or talking to anyone, just lowering his head in deep thought.

At that time, there was a huge debate in society about whether to save the financial industry.

This was the case in 2008, let alone today.

So in this case, although there is a high possibility that the government will rescue Silicon Valley Bank, we must not ignore the other possibility of "not rescuing" it.

So I wouldn't take this slightly risky approach.

My creed has always been: risk control comes first, survival is the most important thing; profit pursuit comes second, profit is just the icing on the cake.