USDC De-Pegged Amid Silicon Valley Bank Collapse: Is It a Repeat of UST?

The collapse of Silicon Valley Bank (SVB) has sent shockwaves through the crypto market, causing USDC to de-peg from its $1 value.

On Friday, SVB was shut down by the California Department of Financial Protection and Innovation due to a bank run amid concerns over its financial health. The Federal Deposit Insurance Corporation (FDIC) has taken receivership of the bank, with all insured depositors set to have access to their insured deposits no later than Monday morning.

Circle, the company issuing USDC, has $3.3 billion in reserves tied up at SVB. This has caused a fraction of its reserves to be stuck in SVB, but according to DeFiIgnas, only about 8% is affected, and most of its reserves are actually short-term treasury bills that will likely be recoverable.

The market has reacted with concern, with USDC dipping to almost $0.88 before recovering to around $0.96 at the time of writing. Coinbase and Binance stopping USDC conversions and contributing to an illiquid market have also contributed to the de-peg.