Depeg

A stablecoin's entire purpose is to hold its peg. When confidence in the reserve mechanism cracks, sellers rush to exit and the price slides below $1.00 (or, rarely, spikes above it). The larger and faster that gap grows, the more it is called a depeg. Traders typically watch the premium or discount to parity — even a persistent $0.003 gap can signal stress worth monitoring. You can track live crypto pricing at /crypto.

The most dramatic historical example is TerraUSD (UST) in May 2022. UST was an algorithmic stablecoin backed not by dollars in a bank but by a sister token called LUNA and a set of on-chain incentives. When large redemptions began, the algorithm minted so many LUNA tokens to defend the $1.00 price that LUNA itself collapsed — which destroyed confidence in UST further, triggering a feedback loop. Within days, UST traded near zero. The episode wiped out tens of billions in stated market value and became a defining example in crypto market cycle history.

A common confusion is treating all depegs as equal. A fiat-backed stablecoin slipping to $0.998 during a moment of thin liquidity is very different from an algorithmic stablecoin in a structural collapse. The reserve type — explored in the stablecoins guide — largely determines how quickly, and whether, a peg can be restored.