- S&P Global report reveals that the banking crisis in March 2023, including the collapse of three US banks, led to USDC and DAI depegging events.
- USDC and DAI dropped to $0.87 and $0.85, respectively, on March 11–13, 2023 due to cash reserves held at SVB.
- USDP stablecoin exhibits the highest deviations above and below $1.
In a recent report by S&P Global, it has been revealed that two prominent stablecoins, USDC and DAI, have experienced longer periods of depegging compared to their counterparts, USDT and BUSD. Circle’s USDC and MakerDAO’s DAI were below $0.90 for 23 minutes and 20 minutes, respectively, in the longest and deepest depeg event.
The study uncovered several facts about five stablecoins – Tether (USDT), Binance USD
BUSD, Paxos (USDP), USDC and DAI. It revealed the fact that if weekends are excluded, a couple of these stablecoins become less volatile (change in value). This is due to the fact that they rely on traditional banking systems, which do not operate on weekends.
S&P Global highlighted the depegging event on March 10-13, 2023, starting with the failure of three US banks, Silicon Valley Bank (SVB), Signature Bank, and Silvergate Bank. This eventually resulted in the depegging of USDC, which fell 13% below $1, and DAI, which fell to $0.85.
The USDC and DAI dips below $0.90 are caused by the SVB collapse in March 2023, when the price fell to $0.87 for USDC and $0.85 for DAI. USDC depreciated as a result of $3.3 billion in cash reserves backing USDC held at SVB.
Furthermore, DAI’s value closely tracked USDC because USDC holdings accounted for more than half of the collateral reserves backing DAI. Following the intervention of the Federal Reserve to support the affected banks, both stablecoins gradually recovered to their pegged values.
While the cryptocurrency market is open 24 hours a day, 365 days a year, RWA-backed stablecoins rely on traditional payment rails to support fiat currency issuance and redemption. The amount of cash held in the banking system by stablecoin issuers could limit available liquidity to support redemptions outside of traditional business hours.
When the USDC price fell to $0.87 on March 11-13, 2023, Circle and its partner Coinbase paused USDC redemptions for fiat, making it temporarily impossible to convert. Those forced to sell their USDC holdings traded them for other stablecoins such as USDT, while others took advantage of arbitrage opportunities between exchanges, resulting in USDC’s market cap nearly halving after the SVB collapse.
If weekends are not counted when looking at how much the values of USDC and DAI change, they tend to change less. However, during the weekend of March 11–13, 2023, the values of these two stablecoins dropped significantly (USDC to $0.87 and DAI to $0.85), which made their prices fluctuate more, or become more volatile.
The USDP stablecoin, a centralised, RWA collateralized stablecoin that is collateralized by cash and cash equivalents in Paxos-owned US bank accounts, has the highest deviations above and below $1.
