A stablecoin depeg is a stretch of time when a token built to be worth exactly $1, or another fixed amount, trades at a price noticeably different from that target on exchanges and trading pools. Most depegs are discounts, with the coin selling for less than a dollar, but a premium above $1 counts as well. The word describes the market price only. A fully backed coin can trade at 95 cents if holders cannot cash out quickly, and a coin can sit at $1 while its reserves are quietly short. The crypto hub places stablecoins within the wider asset class.
How is a stablecoin depeg measured?
A depeg is measured as the gap between the market price and the peg, stated as a percentage or in basis points, with a sign that shows premium or discount.
No regulator or exchange sets an official threshold. On a normal day, trading costs and the hours it takes dollars to clear through banks leave large coins wobbling within a fraction of a cent of $1, so a 0.1% move is noise. Our stablecoin depeg history study flags any day more than 0.5% from $1 and treats a move beyond 2% as a serious break; issuers and analysts draw their own lines. Each 0.01% is one basis point, so a coin 30 basis points under its peg sells for $0.9970.
Three details change the reading. The venue matters, because one thin pool can print a price the wider market never sees. The quote currency matters, because a coin priced against another stablecoin shows the gap between two tokens, not against the dollar. And timing matters: a daily closing price can sleep through an intraday plunge.
Worked example: Sizing a discount and a premium
- A coin quoted at $0.9715: (0.9715 − 1) ÷ 1 = −0.0285, a 2.85% discount, or 285 basis points below the peg.
- Selling 20,000 coins there raises 20,000 × $0.9715 = $19,430, which is $570 short of the $20,000 the same coins fetch at par.
- A coin quoted at $1.012: (1.012 − 1) ÷ 1 = +0.012, a 1.2% premium, or 120 basis points above the peg.
- Buying 20,000 coins at $1.012 costs $20,240. Once the price settles back at $1 they are worth $20,000, a $240 loss for that buyer.
What pulls a depegged stablecoin back to $1?
Redemption does: when approved firms can hand a coin to the issuer for $1, buying cheap coins and redeeming them pays, and that buying lifts the price.
The mirror-image trade deals with premiums. Firms wire dollars to the issuer, receive newly created coins and sell them above $1, adding supply until the premium fades. Both trades need three conditions at once:
- Redemption is open. Issuers settle in dollars through banks, so a weekend, a holiday or a bank failure can pause the trade.
- The backing is believed. A trader pays 97 cents for a coin only if a full dollar is expected back.
- Someone has access. Issuers usually redeem only for vetted businesses, often with large minimums, so ordinary holders rely on those firms to close the gap for them.
When any condition fails, the discount can widen instead of shrinking. How stablecoins work prices the minting and redemption trade with fees, and USDC vs USDT compares the two largest issuers' redemption terms.
How do depegs differ between fiat-backed, crypto-backed and algorithmic coins?
The design decides what can knock a coin off $1 and whether anything can bring it back.
| Design | What usually sets off a depeg | What restores the peg | Worst case | Dated example |
|---|---|---|---|---|
| Fiat-backed (cash and short Treasuries) | Doubts about reserves, a frozen bank account, or redemptions paused outside banking hours | Redemption reopening, or evidence that the reserves are intact | A real shortfall, leaving less than $1 behind each coin | USDC at 86 cents, March 11, 2023 |
| Crypto-backed (overcollateralized loans) | A crash in the collateral, or reliance on another stablecoin that slips | Borrowers buying coins back to repay loans, plus automatic liquidations | Collateral falling faster than liquidations can sell it | DAI, pulled below $1 alongside USDC in March 2023 |
| Algorithmic (a swap rule, no outside assets) | A loss of confidence that turns into a run | Only renewed demand, since holders have no reserve to claim | A spiral toward zero | UST, from May 9, 2022 |
A fiat-backed coin can usually recover if the assets exist, because redemption gives every coin a floor equal to its share of the reserves. An algorithmic coin has no such floor: the Hong Kong Monetary Authority's study of the May 2022 crash describes TerraUSD's system minting ever more LUNA to absorb redemptions until both tokens were close to worthless.
What happened in the UST and USDC depegs?
UST lost its peg on May 9, 2022 and fell to nearly zero; USDC sank to 86 cents on March 11, 2023 and regained $1 two days later.
TerraUSD, May 2022. Entering that month, UST was the third-largest stablecoin, with a market value above $18 billion, according to the Financial Stability Oversight Council. Its peg rested on a promise that one UST could be swapped for $1 of LUNA, a sister token from the same developer. A foundation tied to the developer had reportedly bought about $3.5 billion of bitcoin to defend the peg, but holders had no right to redeem for it. On May 9 the price fell well below $1, several platforms halted trading, and within days it was near zero. The run spread: Tether's USDT touched $0.94 on May 11 before recovering to just below $1 within a day. In February 2023 the SEC charged Terraform Labs and its chief executive with fraud, alleging they had misled investors about UST's stability.
USDC, March 2023. Silicon Valley Bank failed on Friday, March 10, and at 10 p.m. that night Circle said $3.3 billion of USDC reserves, around 8% of the total, was stuck there. Redemptions stalled over the weekend, holders could only sell to one another, and USDC traded as low as 86 cents, by Federal Reserve researchers' account. Regulators said on Sunday evening that every depositor at the bank would be protected, the price rebounded, and it was back at $1 once Circle resumed redemptions on Monday, March 13. DAI and two smaller coins fell with it through one-for-one swap facilities, while USDT edged above $1 as money moved to it.
Worked example: Reading USDC's low against its reserves
- Worst case for the reserves: had the stuck $3.3 billion, about 8% of the total, been lost outright, the other 92% would still have covered each coin with about 92 cents.
- Market low: 86 cents, a 14% discount, or 1,400 basis points.
- Unexplained gap: 92 − 86 = 6 cents a coin, a discount for being unable to redeem until Monday rather than for missing assets.
- A holder who sold 50,000 USDC at the low received 50,000 × $0.86 = $43,000. The same coins were worth $50,000 again by March 13.
How do the GENIUS Act reserve rules apply to depegs?
From January 18, 2027, permitted US issuers must hold at least $1 of safe, liquid assets per coin, publish them monthly and follow a published redemption policy.
The law targets the two questions that start runs: what stands behind each coin, and whether holders can get dollars out. Its timeline: Signed July 18, 2025 (Public Law 119-27); takes effect January 18, 2027. Section 4 sets the reserve rule: at least 1:1 reserves in cash or Federal Reserve balances, deposits at insured banks and credit unions, Treasuries with 93 days or less to maturity, overnight repos and reverse repos backed by Treasuries, government money market funds that hold only those assets, other liquid federal government assets a regulator approves, and tokenized versions of the non-repo assets. The reserves cannot be pledged or reused except in narrow cases, such as repo trades that raise cash for redemptions.
Each month the issuer posts the number of coins outstanding and the amount, makeup, average maturity and custody location of its reserves, and a registered public accounting firm examines the report. The redemption policy must set out clear procedures for timely redemption and disclose every fee in plain language, with at least seven days' notice before a fee changes; only regulators may impose discretionary limits on redemptions.
A UST-style coin, propped up only by another token from the same originator, could not meet that reserve list; section 14 calls such designs endogenously collateralized and ordered a Treasury study of them. What the law does not do is set the market price. A coin from a permitted issuer can still trade under $1 in a panic. Its protections work through redemption, disclosure and, if an issuer fails, holders' first claim on the reserves, which the GENIUS Act guide explains.
How is a depeg different from insolvency, a peg break or volatility?
A depeg is a market price move, insolvency is a shortfall of assets, a currency peg break is a policy decision, and volatility is normal movement in unpegged assets.
| Term | What it describes | How it relates to a stablecoin depeg |
|---|---|---|
| Stablecoin depeg | A pegged token's market price drifting well away from its target | The symptom visible on exchanges |
| Redemption pause | The issuer stops swapping coins for dollars, for hours or longer | A frequent trigger, as over USDC's weekend in March 2023 |
| Insolvency | Assets worth less than the coins outstanding | A depeg that redemption cannot cure |
| Currency peg break | A central bank abandons a fixed exchange rate | A policy choice, such as the Swiss National Bank ending its CHF 1.20 per euro floor on January 15, 2015 |
| Volatility | Price swings in assets with no target, such as bitcoin | Nothing to depeg from, because no price was promised |
| Slippage | The gap between the expected and filled price on one order | A large sale into a thin pool can print a brief false depeg |
What mistakes do people make when reading a depeg?
The most common mistake is treating one quote from one venue as the coin's price, when depegs vary by exchange, by quote currency and by hour.
- Trusting a single screen. Check several large venues, or a tracker such as top stablecoins, before concluding that a coin has broken.
- Reading daily data as lows. Our study's daily reading for USDC on March 12, 2023 was 3.89% below $1, far shallower than the 86-cent intraday trough.
- Ignoring premiums. A coin bought at $1.02 loses about 2% when it settles back at $1.
- Equating price with solvency. USDC's March 2023 discount was deeper than its worst plausible reserve loss, while a coin can trade at $1 on reserves nobody has examined. Proof of reserves covers what reserve checks do and do not show.
- Assuming insurance. A stablecoin is not a deposit, so neither the FDIC nor SIPC covers a fall in its price; FDIC vs SIPC explains both programs.
- Forgetting the timing of a payment. A coin that breaks mid-transfer changes what the recipient gets on cashing out, a risk covered in sending money with stablecoins.
Rewards advertised for holding stablecoins carry this risk on top of their own, as stablecoin yield vs bank interest sets out. Crypto bought with stablecoins is volatile and can lose most or all of its value.