Stablecoin

A crypto asset designed to hold a fixed value, usually one US dollar.

Also called: usdt · usdc · pegged

In plain language

Stablecoins are the settlement layer of crypto trading. Most pairs are quoted against them, and they function as the cash position between trades.

Backing models vary. Some hold cash and short-term treasuries; others rely on crypto collateral or algorithms. The backing determines how the peg behaves under stress.

Pegs are maintained, not guaranteed. A stablecoin trading at $0.97 during a panic is a real and recurring event.

Worked through

USDC and the Silicon Valley Bank weekend, March 2023

Circle, which issues USDC, held part of its reserves in cash deposits at Silicon Valley Bank. When the bank failed on 10 March 2023 and it became unclear whether those deposits would be recovered, USDC broke its peg — trading as low as roughly $0.87 over that weekend.

For anyone sitting in USDC between trades, that was not a market risk they had taken a view on. It was a 13% loss on the part of the account they considered cash, arriving on a Saturday, in an instrument whose entire purpose was to not do that. The peg was restored the following week once US regulators guaranteed the deposits.

The lesson is not that USDC is unsound — it recovered, and holders who did nothing were made whole. It is that a stablecoin is a claim on an issuer, and the backing behind the claim decides how it behaves on the worst weekend rather than on an ordinary Tuesday. That is worth knowing before the account is parked in one.

Why it matters

If your account is denominated in a stablecoin, a depeg is a direct loss on your entire balance, including capital you thought was sitting safely in cash.