On the night of 11 March 2023, Circle posted a tweet announcing Silicon Valley Bank (SVB) as one of six banking partners. The company confirmed that they held approximately 3.3billion USD of $USDC backing at SVB.

After the news, the value of $USDC dropped to below 0.87 per USD overnight, causing a depeg. Following this, various projects and protocols associated with $USDC experienced significant losses. The market capitalization of $USDC has now fallen below 40 billion USD, but the situation looks much better, and $USDC is slowly returning to its peg.

Of the total 40 billion USD of $USDC reserves, 3.3 billion USD’s worth is tied up in SVB. In a blog post, Circle said, “we will stand behind $USDC and cover any shortfall using corporate resources, involving external capital if necessary.”

Impact

Overnight, the value of $USDC dropped below 0.87 per USD, causing a depeg. Following this, various projects and protocols (e.g., $DAI, $FRAX, and $GNS) associated with $USDC also experienced significant losses. It is clear that if $USDC were to fall below certain levels, it would risk a huge problem for all of DeFi, with liquidation cascading across the entire space. However, this scenario is unlikely to happen at the moment.