Depeg
A depeg is when a stablecoin, or another pegged asset, moves significantly away from its target price, for example a dollar stablecoin trading at 0.95 or 1.05 dollars instead of 1.
Why pegs normally hold
A peg is held mostly by arbitrage. If a fiat-backed stablecoin trades at 0.99 dollars, traders who can redeem with the issuer buy it cheaply and redeem it for 1 dollar, pushing the price back up. If it trades at 1.01, they deposit dollars, mint new tokens and sell them. Crypto-backed stablecoins use similar incentives, such as cheap repayment of loans when the coin trades below its peg.
Small deviations of a fraction of a cent are normal on exchanges. A depeg means a larger, persistent gap that arbitrage fails to close quickly.
What causes a depeg
Doubts about reserves: if people fear the backing is missing or inaccessible, they rush to sell before others. Redemption limits: when only some users can redeem, or redemptions are paused, arbitrage weakens. Collateral crashes: crypto-backed coins can wobble when their collateral falls fast. Design failure: algorithmic stablecoins can enter a spiral where selling creates more supply and less confidence.
Thin liquidity on a specific exchange or pool can also produce a local depeg that is quickly corrected elsewhere.
Two well-known cases
In May 2022, TerraUSD (UST), an algorithmic stablecoin, lost its peg and never recovered; it fell to a few cents within days, and its sister token LUNA collapsed with it. In March 2023, USDC dropped to roughly 0.88 dollars over a weekend after its issuer disclosed reserves held at the failed Silicon Valley Bank, then recovered once US authorities guaranteed that bank's deposits. One was a design failure; the other a temporary reserve scare.
What it means for holders
A depeg can create real losses if you sell in panic or if the peg never returns. It can also trigger liquidations in DeFi when protocols value the stablecoin at its market price. Spreading holdings across different stablecoin designs and knowing your redemption options reduces, but does not remove, the risk.
Ask Coach about it
Coach is the AI on AtenaCrypto. It explains crypto with live market data, in plain words.
What happened during the 2023 USDC depeg and why did the peg recover?Ask Coach →
Frequently asked questions
Can a stablecoin depeg upward?
Yes. Strong demand or minting limits can push a stablecoin above its target for a while, though downward depegs are more common and more damaging.
Do stablecoins always recover from a depeg?
No. Well-backed coins have recovered from temporary depegs, but TerraUSD shows that a failed design can lose its value permanently.
How do I check if a stablecoin is depegging?
Compare its price across several major markets and pools; a gap on one venue alone may just reflect thin liquidity there.
Related terms
Learn it step by step
AC Learning explains these ideas in interactive lessons — the first eight sections are free.
Open AC Learning → Create a free accountAll glossary terms · Educational reference only — not investment, legal, tax or financial advice.