US Dollar Coin, the No. 2 stablecoin by market cap, designed to remain always priced at $1, is currently trading at 91 cents, according to data on both CoinMarketCap and CoinGecko.
It fell as low as 87 cents overnight, below its prior all-time-low of 89 cents in May 2019. On Saturday morning, it had begun to recover.
The depegging happened after Circle, the issuer of USDC, disclosed on Friday night that some $3.3 billion worth of the cash reserves that back USDC remain held at Silicon Valley Bank, which was shut down by California financial regulators this week after a bank run.
Even before that disclosure, major crypto exchanges Binance and Coinbase took action, announcing they would temporarily suspend USDC conversions amid the panic. That means customers with USDC held on those exchanges cannot get it out or convert it to something else, and are nervously waiting to hear more from Circle or see USDC regain its peg.
1/ Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.
— Circle (@circle) March 11, 2023
USDC's depegging has also triggered depegging by other notable dollar-pegged stablecoins: DAI (which comes from Maker), USDD (from Tron), and USDP (from Paxos). DAI is at 93 cents as of Saturday morning, USDD is at 95 cents, and USDP is at 96 cents.
Dollar-pegged stablecoins are designed to be "stable" in that they keep a constant price of $1. USDC was launched by Centre, a joint venture between Circle and Coinbase, and a USDC explainer page on Circle's web site says USDC is "always redeemable 1:1 for U.S. dollars."
Until it isn't.
A stablecoin’s peg is not truly determined by the price on an exchange.
It is determined by the ability to redeem directly from the issuer 1 for 1.
That will be the question this week. Can people redeem directly from Circle?
— The Wolf Of All Streets (@scottmelker) March 11, 2023
Of course, Circle is hardly the only crypto company slammed by the sudden collapse of Silicon Valley Bank.
On Friday, a slew of other companies and projects revealed their exposure to SVB, including BlockFi, Circle, Avalanche, Proof, and Yuga Labs. But Circle is in a unique position among those names of being responsible for upholding confidence in a product touted as being always fully backed by cash held in reserves, and always redeemable for $1.