NY Fed on Stablecoins and SVB
The Federal Reserve Bank of New York published a paper titled, "Stablecoins and (Non)Crypto Shocks: A 2026 Update." It states, "Stablecoins are digital assets whose value is pegged to that of a fiat currency, typically the U.S. dollar at a peg of $1.00 per token. In a previous blog post, we described the rapid growth of stablecoins through early 2025, highlighted changes in stablecoins' reserve-asset composition, and examined their reactions to Bitcoin price shocks. In this post, we document the growth of stablecoins since our last post. Then, we examine how shocks from outside the crypto industry can impact the composition of stablecoins' reserve assets. For our case study, we use the 2023 failure of Silicon Valley Bank (SVB) and its impact on USD Coin (USDC, issued by Circle), the second-largest stablecoin by market capitalization." The piece explains, "Since our last post in April 2025, the market capitalization of U.S. dollar stablecoins has increased by $71 billion (30 percent) to about $308 billion recently.... This period coincides with the passage of the GENIUS Act in July 2025, which established the first federal regulatory framework for payment stablecoins." It continues, "The stablecoin industry remains highly concentrated, with the two largest issuers, Tether (USDT) and USDC, accounting for over 80 percent of industry assets. The reserve composition of these stablecoins differs significantly: USDC's attested reserves consist primarily of cash and short-term U.S. government securities. In contrast, corporate bonds, gold bars, Bitcoin, secured loans, and 'other investments' accounted for nearly 24 percent of USDT's attested reserves as of December 2025." The blog says, "In prior posts, we examined the impact of positive and negative crypto price shocks on net flows into stablecoins. Here we study a complementary question: how do non-crypto shocks affect net flows into stablecoins and the composition of their reserve assets? This question is important given stablecoins' increasing interconnectedness with traditional financial markets. To answer it, we document the changes in USDC's reserve assets following SVB’s failure in March 2023. On March 11, 2023, Circle reported that approximately 8 percent of USDC's reserves were held at SVB, which had been placed into FDIC receivership the previous day. Following Circle's announcement, USDC's secondary market price dropped considerably below $1.00, and it experienced notable net outflows. In addition to these effects, the composition of the Circle Reserve Fund (CRF), a money market mutual fund (MMF) whose shares can only be purchased by Circle, changed significantly. (The CRF accounts for approximately 86 percent of USDC's reserve assets as of March 2026.)" Finally, the post adds, "Following SVB's failure in March 2023, the composition of USDC's primary reserve asset, held in an MMF, changed notably: the average maturity of its reserve assets declined significantly; its repo holdings surged and became concentrated in FICC in recent years. In addition, its direct deposits with banks shifted from a combination of GSIBs and non-GSIBs to GSIBs. Overall, the SVB event triggered a change in the type of risk held by one of the largest stablecoin issuers, away from interest-rate risk and toward counterparty risk. These changes highlight the growing interconnectedness between traditional finance and new, emerging financial technologies."
