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USDC and the SVB Depeg (March 2023)

A $3.3B reserve freeze.

Exposure disclosed

Silicon Valley Bank was closed by California regulators on March 10, 2023. That night Circle disclosed that $3.3 billion of USDC's roughly $40 billion reserves were held at SVB.

The depeg

USDC fell to about $0.87 on March 11 on some venues. Dai, which held much USDC collateral through Maker's peg stability module, dropped to about $0.89. Curve's 3pool became heavily imbalanced toward USDC and DAI as traders sought USDT.

Redemptions halted on weekends

Because banking rails were closed for the weekend, Circle could not process redemptions, so arbitrageurs could not buy USDC below $1 and redeem at par with certainty. Prices reflected the probability of loss on the SVB deposit.

The backstop

On March 12, the Fed, Treasury and FDIC announced all SVB depositors would be made whole. USDC recovered to above $0.99 by March 13 as Circle resumed redemptions through other banking partners.

Lessons

The episode showed fiat-backed stablecoins carry bank-counterparty risk. Circle later moved most reserves into the BlackRock-managed Circle Reserve Fund, mostly short T-bills and repo.

By the numbers

For USDC and the SVB Depeg, the reference figures are reserves at svb of $3.3 billion, low of ~$0.88, recovery of March 13, 2023, backstop of FDIC guarantee. The comparison table below lines up asset, low (mar 11, 2023), recovered — USDC: ~$0.87 / Mar 13; DAI: ~$0.89 / Mar 13; SVB exposure: $3.3B / Fully returned.

Modeling USDC and the SVB Depeg with the Stablecoin Dry Powder Ratio Calculator

The Stablecoin Dry Powder Ratio Calculator takes three inputs — Stablecoin supply ($B), BTC market cap ($B), Price ($). SSR = BTC cap ÷ stablecoin supply. With its default inputs (Stablecoin supply ($B) = 160; BTC market cap ($B) = 1300; Price ($) = 65000) it returns 8.13 x; swap in the figures from USDC and the SVB Depeg above to reproduce the scenario yourself.

Modeling USDC and the SVB Depeg with the DEX Price Impact Slippage Calculator

The DEX Price Impact Slippage Calculator takes three inputs — Trade size ($), Pool liquidity ($), Fee (%). Impact ≈ trade ÷ (reserve + trade) + fee. With its default inputs (Trade size ($) = 50000; Pool liquidity ($) = 2000000; Fee (%) = 0.3) it returns 5.06 %; swap in the figures from USDC and the SVB Depeg above to reproduce the scenario yourself.

Data Table

For educational and informational purposes only. Not financial, investment, tax or legal advice. Figures are approximate and historical; crypto assets are volatile and you may lose capital. Do your own research.