Deciphr Academy
Track 5 · Module 22 · Lesson 5 of 7 · 8 min read

What is a stablecoin depeg, and what happened to USDC in March 2023?

Short answer

A depeg is when a stablecoin's market price moves away from its peg, for example a dollar coin trading at 90 cents.1,2 In March 2023, USDC fell below 90 cents after Circle said $3.3 billion of its reserves were stuck at the failed Silicon Valley Bank. It recovered within about three days.1

Doubtcan I get $1 back?Redeem and sellbefore others doFire salesreserves sold fastPrice fallsbelow the pega runfeeds itself
Fig. 5. A run feeds itself. Doubt leads to redemptions and selling, the price falls, and the fall creates more doubt.

What a depeg is

Stablecoins trade on exchanges at whatever price buyers and sellers agree. The BIS says that price can drift from par, and that stablecoins of many kinds have seen large drifts.2 When the gap gets big, people say the coin has "de-pegged".1

How we work out a depeg

The peg is the value a stablecoin aims for, such as $1.3 The sums below are our own worked examples, not figures from the sources. The quizzes use these methods.

Size of a depeg. Take the market price, subtract the peg, and divide by the peg. A dollar coin trading at $0.97 is 3% below its peg.

Loss on paper. If you hold 100,000 tokens and the price falls to $0.97, they are worth $97,000 on the market: $3,000 less.

Whether a paper loss becomes real depends on whether you sell, and on whether the issuer later redeems at $1.3

Why runs happen

US regulators described a stablecoin run in 2021 as a self-reinforcing cycle of redemptions and fire sales of reserve assets.4 They listed four things that can shake confidence:4

  • reserve assets that could fall in price or become hard to sell;4
  • reserves that are not kept safe;4
  • unclear rights to redeem;4
  • operational risks, such as cyber attacks.4

Fed staff compare it to a bank run. If holders think a coin may lose value, each has a reason to redeem before the others do.3 Selling reserve assets in a hurry can push their value down, which feeds the run.3

Fed staff say a run driven purely by mood only goes away when each token is backed by exactly the asset it is pegged to, such as a dollar for a dollar.3 Even then, they say, the risk around how reserves are held remains.3

March 2023: USDC and Silicon Valley Bank

  • Friday 10 March. California regulators closed Silicon Valley Bank (SVB) and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.5 That day, Circle said it had not been able to wire out $3.3 billion of USDC reserves, out of about $40 billion, held at SVB.1
  • The weekend. Circle said USDC issuance and redemption were limited by US banking hours.1 USDC and DAI both fell below 90 cents on the market.1
  • Sunday 12 March. The US Treasury, the Federal Reserve and the FDIC said all SVB depositors would be fully protected, with access to their money from Monday.6 Circle said its $3.3 billion, about 8% of USDC's reserves, would be fully available.7
  • The next days. USDC and DAI recovered over about three days.1 Between Monday 13 and Wednesday 15 March, Circle said it redeemed $3.8 billion of USDC and cleared substantially all of its backlog.8

Fed staff found that USDC's market capitalisation, the total value of all its tokens, shrank by nearly $10 billion after the episode.1 They also noted that some exchanges stopped offering one-for-one swaps of USDC, which cut off another way out for ordinary holders.1

Why redemption matters

Redemption is what normally pulls the price back. When a coin trades below $1, holders who can redeem with the issuer can buy cheaply and redeem at $1, which lifts the price.3 In March 2023 that route was limited until the banks opened.1

Most holders can't redeem directly, so they depend on the market price.1 Circle's own terms say it does not guarantee that one USDC will equal $1 on other platforms.9

Our viewA depeg is a price. A failure is when the money isn't there. The hard part, in the moment, is that you can't always tell which one you are looking at.
Sources
  1. Primary and Secondary Markets for Stablecoins (FEDS Notes). Board of Governors of the Federal Reserve System (Cy Watsky and others), 23 February 2024.
  2. Annual Economic Report 2025, Chapter III: The next-generation monetary and financial system. Bank for International Settlements, 29 June 2025.
  3. The stable in stablecoins (FEDS Notes). Board of Governors of the Federal Reserve System (Garth Baughman, Francesca Carapella, Jacob Gerszten and David Mills), 16 December 2022.
  4. Report on Stablecoins. President's Working Group on Financial Markets, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, November 2021.
  5. FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California. Federal Deposit Insurance Corporation, 10 March 2023.
  6. Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC. Board of Governors of the Federal Reserve System, 12 March 2023.
  7. $3.3 Billion of USDC Reserve Risk Removed, Dollar De-peg Closes. Circle press release, 12 March 2023.
  8. March 15, 2023: Update on USDC operations. Circle blog, 16 March 2023.
  9. USDC Terms. Circle, last updated 15 October 2026; read 22 October 2026.
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General education built from the publicly available sources listed above. Not financial, legal, tax or investment advice. Naming a company, project or regulator is not an endorsement either way. Last checked 2026-10-22. Terms and disclaimer.