How USDC temporarily lost its peg to the dollar during the banking crisis in March 2023.
What happened?
1. The collapse of Silicon Valley Bank (SVB) – On March 10, 2023, one of the key banks where Circle (the issuer of USDC) held its reserves was on the brink of collapse.
2. $3.3 billion of USDC reserves were at risk – Circle reported that part of the reserves (about 8%) was held at SVB and could be inaccessible.
3. Panic in the market – Investors began to sell USDC en masse, fearing it was no longer backed 1:1 by dollars.
4. USDC fell to $0.87 – On March 11, 2023, the price of USDC on some exchanges dropped below $0.90 due to destabilization of trust.
How did the peg recover?
- The Fed and FDIC intervened – On March 12, U.S. authorities guaranteed full access to deposits at SVB, and Circle was able to recover its funds.
- Circle confirmed the backing of USDC – After access to reserves was restored, the USDC price quickly returned to $1.
Conclusion:
USDC temporarily lost its peg due to the banking crisis but quickly recovered after regulatory actions. This episode highlighted the risks of stablecoins reliant on the traditional banking system.
Since then, Circle has diversified its banking partnerships and increased the share of reserves in U.S. Treasury bonds.