The digital protocols we offer customers to earn interest with all make use of stablecoins, which we deposit and withdraw funds in.
While stablecoins generally are stable, in times of high market volatility (e.g. if a lot of one specific stablecoin is sold at the same time) there is a risk the stablecoin's peg deviates from the dollar. This means at a certain point the value of the stablecoin actually differs from $1.00 (e.g. it could be trading at $0.98).
Stablecoins have two types of mechanisms for restoring their peg back to $1.00 in such cases. One is full reserve backing, which is used by USDC. This means that for every 1 USDC in supply, $1.00 of real USD is kept in reserve. The other mechanism is algorithmic, used by UST and DAI. With this method, 1 UST can always be purchased and sold for $1.00 worth of another specific crypto asset.
Nonetheless, there could be times in which the value of a stablecoin we manage does not temporarily equal $1.00. We deal with this risk in three ways:
We only use the most trusted and tested stablecoins.
We allocate funds across a number of stablecoins to not be fully exposed to the potential instability of one stablecoin. If a withdrawal is requested and one of the stablecoins we use is not at its peg, we can still use other stablecoins to send you your funds without delay. In extreme cases we might be forced to increase the withdrawal time to 3 business days to allow more time for the peg to stabilize.
We handle deposits and withdrawals in USDC via Coinbase. Every US-based Coinbase user can always trade USDC to USD 1:1 inside Coinbase without fees. This means the customer will always receive the exact amount of USD that was requested.