USDC Depeg During SVB Collapse

2023

Date: March 10-13, 2023 · Place: Silicon Valley Bank failure, Circle treasury exposure, weekend trading · Figures: Jeremy Allaire, Circle CEO · Silicon Valley Bank, holder of $3.3B of Circle reserves · Caroline Ellison, Genesis, and the prior FTX context · the FDIC, weekend backstop · Tags: Depeg, Stablecoin, Weekend Risk, Bank Run 01. $3.3B Stuck in a Failed Bank Silicon Valley Bank is closed by California regulators on Friday March 10 2023. Circle, issuer of USDC, discloses Saturday morning that $3.3 billion of its $40 billion reserves (roughly 8.25%) is held at SVB and inaccessible. USDC depegs from $1.00 to a low of $0.87 on Coinbase by Saturday evening. DAI, the largest decentralized stablecoin, depegs in sympathy because more than half of its collateral is USDC. The MakerDAO emergency executive vote begins Saturday afternoon. Curve 3pool sees billion-dollar swaps from USDC to USDT within hours. 02. Sunday Night Federal Backstop On Sunday March 12 2023 the Federal Reserve, Treasury, and FDIC jointly announce that all SVB depositors will be made whole, including uninsured balances. USDC repegs to $1.00 within 12 hours of the announcement. The repeg is functionally a public-private bailout. The depeg becomes the canonical 'centralized stablecoins inherit traditional banking weekend risk' case study. Tether, ironically the more opaque issuer, trades at $1.005 throughout the weekend because none of its reserves are at US regional banks. The episode is the cleanest demonstration that crypto and TradFi credit risk are now the same surface. Sources • Circle, 'An Update on USDC and Silicon Valley Bank,' March 11 2023 • Joint statement by Treasury, Federal Reserve, and FDIC, March 12 2023 • Krisztian Sandor and Sam Reynolds, 'USDC Depegs as Circle Reveals SVB Exposure,' CoinDesk, March 11 2023 • Matt Levine, 'Bank Run for the Stablecoin,' Bloomberg Money Stuff, March 13 2023