USDC Fell to 88 Cents as Silicon Valley Bank Exposure Broke Its Peg

USD Coin fell sharply below its intended one-dollar value on March 11, 2023 after issuer Circle disclosed that $3.3 billion of its reserves remained at the failed Silicon Valley Bank. Reuters, citing CoinGecko, recorded USDC at approximately $0.88 shortly after 08:00 GMT before it recovered to about $0.97 around 21:00 GMT.

The disruption mattered because USDC was designed to function as a redeemable dollar instrument across exchanges, payment services and decentralized-finance protocols. Its blockchain continued operating, but the cash backing part of its redemption promise was inside a bank receivership while conventional payment systems were closed for the weekend.

Circle promised to absorb a shortfall

In a March 11 update, Circle said USDC would remain redeemable one-for-one and that normal liquidity operations would resume when United States banks opened on March 13. If Silicon Valley Bank returned less than the full deposit, Circle said it would use corporate resources—and external capital if necessary—to cover the difference.

That was a company commitment, not proof on March 11 that every dollar would be recovered or that Circle had already raised replacement capital. The Federal Deposit Insurance Corporation’s initial March 10 plan protected insured deposits while leaving the treatment and amount of uninsured deposits unresolved. Federal authorities had not yet announced the broader depositor protection that followed on March 12.

Circle described the reserve behind USDC as 77%, or $32.4 billion, in short-dated United States Treasury bills and 23%, or $9.7 billion, in cash. It said the Treasury portfolio was held at BNY Mellon and managed by BlackRock. The $3.3 billion at Silicon Valley Bank therefore represented roughly one-third of Circle’s stated cash reserve and about 8% of the approximately $40 billion total reserve disclosed around the event.

The 8% figure is a rounded issuer characterization rather than an independently calculated precision measure. Circle’s disclosures did not constitute a real-time audit of every reserve account.

A continuously traded token met banking hours

Circle said USDC issuance and redemption were constrained by the operating hours of the United States banking system. Coinbase separately paused conversions between USDC and dollars during the weekend, citing heightened activity and the need for bank transfers to clear during normal banking hours.

Those restrictions did not stop holders from transferring USDC or selling it on secondary markets. They did, however, weaken the direct redemption arbitrage intended to keep its traded price near one dollar. Sellers accepting less than one dollar reflected uncertainty about reserve recovery, the timing of redemptions and Circle’s ability to honor its commitment—not a final receivership loss determination.

The price measurements also require limits. Reuters attributed the approximately $0.88 and $0.97 observations to CoinGecko but did not identify an individual exchange, executable USDC/USD order, volume-weighting method or complete sampling interval. Cryptocurrency trades continuously, so neither observation represents an official daily close or a price available on every venue.

Stress spread through stablecoin infrastructure

The dislocation reached beyond USDC because the token served as collateral and liquidity inside decentralized markets. DAI, whose Peg Stability Module accepted USDC at a fixed one-for-one rate, also traded below its dollar target during the episode. That transmission demonstrated that a stablecoin backed through separate smart contracts could inherit risk from reserve assets embedded in its design.

The March 11 record established a severe secondary-market discount, constrained redemption channels and an issuer promise to cover a possible shortfall. It did not establish whether Silicon Valley Bank depositors would be made whole, whether USDC’s price recovery would persist, or whether banking access would normalize. Those outcomes depended on actions announced after March 11.