Top Stablecoins Flirt With USD Peg After Crashing to All-Time Lows

Leading stablecoins, including USDC, haven’t quite returned to their dollar peg. But at least they’re recovering

article-image

Shutterstock.com/sakhorn, modified by Blockworks

share

Circle’s USDC and other stablecoins are still struggling to return to their US dollar peg after collapsing over the weekend in response to a spate of crypto bank failures.

USDC was trading at under $0.99 as of 7:30 am, ET, as was MakerDAO’s Dai, Frax’s Frax, Paxos’ Pax Dollar, Tron’s USDD and Gemini’s GUSD.

Circle kept $3.3 billion of its reserves with Silicon Valley Bank (SVB) as it failed, sending USDC to an all-time low of below $0.88 on Saturday. DAI, which is backed by more than 50% USDC, hit similar record lows around the same time as USDC.

Tether (USDT) and Binance USD (BUSD), on the other hand, held ground, with the former keeping its cash reserves in banks across the Bahamas and Puerto Rico — away from the US banking sector.

Sylvia To, research lead at crypto exchange Bullish, told Blockworks the depegging across various projects was due to contagion woes associated with Circle’s SVB exposure.

“There was a lot of fear, uncertainty and doubt (FUD),” she said. “Coinbase and Binance announced they were suspending USDC to USD conversions, which only heightened the FUD around USDC.”

Most top stablecoins work towards full collateralization: for every stablecoin issued, there is an equivalent amount of fiat currency or other similarly liquid assets (such as US Treasurys) maintained by third-party partners.

Centralized stablecoin issuers, such as Circle, Tether and Paxos, also pledge to facilitate cash redemptions for every stablecoin in circulation; every token should be exchanged for US dollars upon request.

Their ability to process those cash redemptions is essentially what gives each stablecoin their dollar-value. The price of stablecoins on exchanges should therefore be considered a measure of trust in their issuers’ abilities to handle those redemptions, although order book liquidity plays an important role.

So, when USDC declared it had $3.3 billion in Silicon-Valley-Bank limbo, markets distrusted that it could effectively meet dollar redemptions moving forward, sending prices below $1. More decentralized offerings, such as DAI and FRAX, suffered as a result.

Nansen researcher Andrew Thurman told Blockworks there ostensibly exists an abundance of “decentralized” stablecoins whose reserves are primarily or heavily backed by USDC.

More than 40% of DAI, for example, is backed by USDC. “Any failure in USDC’s backing would have been a failure in these tokens as well,” Thurman said.

While it’s still not trading at $1, the market now appears more confident in pricing USDC closer to parity after the Federal Reserve and FDIC stepped in Sunday with measures intended to make SVB depositors — such as Circle — whole, alongside Signature Bank customers.

Circle CEO Jeremy Allaire then confirmed the entirety of USDC reserves are secure and that his company has begun transferring the remaining cash held with SVB to the BNY Mellon.

Allaire said a new banking partner with automated minting and redemption would be onboarded soon. He also advocated for a full-reserve digital currency banking system to insulate the base layer of internet money from “fractional reserve banking risks.”

David Canellis contributed reporting.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

recent research

Research Report Templates.png

Research

An overview of the Base Ecosystem, with a focus on market leaders.

article-image

Although bitcoin hitting $120k by year’s end is looking unlikely

article-image

About 270 million HYPE has been claimed, valued around $7.6 billion

article-image

Stanford professors David Mazières and Dan Boneh will lead the lab alongside a cohort of graduate student researchers

article-image

With more companies holding BTC, bitcoin yielding strategies could become “a new corporate finance norm,” CoinShares posed

article-image

The proposal comes after Polygon governance considered a controversial use of bridged liquidity for yield

article-image

Can the community balance its decentralized ethos with the need for inclusivity and constructive debate?