By Allium Research

Stablecoins are crypto-assets designed to maintain a stable value against a reference asset, typically the U.S. Dollar. The peg to the dollar is supported by the assets that back the stablecoin. Stablecoins perform dollar-like functions in decentralized finance ("DeFi") and represent a run-able liability for their issuers. As with money market funds and bank deposits, stablecoins are susceptible to crises of confidence, contagion, and self-reinforcing runs.

In this note we utilize a granular dataset to document the market stress experienced by USDC, the second largest stablecoin by market cap, during the Silicon Valley Bank ("SVB") crisis of March 2023. SVB was a traditional bank that failed due to inadequate risk management practices.¹ The bank experienced a rapid run of deposits and was taken into receivership by the Federal Deposit Insurance Corporation ("FDIC").

Shortly after, Circle, the issuer of USDC, publicly announced that it was unable to access a portion of its dollar reserves held as (uninsured) deposits at SVB. This announcement precipitated a surge in redemption requests by holders of USDC, causing the stablecoin to lose its peg against the dollar on secondary markets when Circle shut down primary market operations over the weekend.