Risks & Security
Depeg
When a stablecoin or pegged asset loses its intended price peg
Definition
A depeg occurs when a stablecoin or pegged asset loses its intended price peg (typically $1 for USD stablecoins). Depegs can be temporary (market-driven) or permanent (fundamental failure). Causes include bank runs, collateral crises, oracle failures, or loss of confidence. The severity ranges from minor fluctuations to total collapse (e.g., UST/LUNA).
Example
USDC briefly depegged to $0.87 in March 2023 when Silicon Valley Bank (holding $3.3B of Circle's reserves) collapsed, before recovering after government intervention.
What to check
Treat it as a risk term: identify the failure mode, who can be harmed, and what evidence would reduce that risk. The main checks are: Cascading depegs across DeFi; Liquidity pool imbalance; Collateral value collapse.
Risks to Consider
- Cascading depegs across DeFi
- Liquidity pool imbalance
- Collateral value collapse
Common Questions
Are all depegs dangerous?
No. Minor temporary depegs (e.g., 0.5% deviation) are normal and usually corrected by arbitrageurs. Sustained depegs exceeding 2-5% signal deeper problems and warrant caution.
What does Depeg mean in DeFi?
Depeg means When a stablecoin or pegged asset loses its intended price peg. The useful question is not only the definition, but how the mechanism changes risk, return, liquidity, or governance for the user.
How is Depeg used in practice?
A practical example: USDC briefly depegged to $0.87 in March 2023 when Silicon Valley Bank (holding $3.3B of Circle's reserves) collapsed, before recovering after government intervention.
