Stablecoin Depegging: Why It Happens and How It Hits Your Portfolio
When a stablecoin, a cryptocurrency designed to maintain a fixed value, usually tied to the US dollar. Also known as pegged token, it loses its $1 value, it’s not just a price dip—it’s a system failure. This is stablecoin depegging, and it’s one of the most dangerous events in crypto. Unlike Bitcoin or Ethereum, stablecoins aren’t meant to swing. They’re supposed to be digital cash. When USDC drops to $0.90 or DAI hits $0.85, it’s not a glitch—it’s a signal that trust is breaking down.
Depegging doesn’t happen out of nowhere. It usually starts with a loss of confidence. Maybe the issuer can’t prove it has enough cash reserves. Maybe a major holder dumps millions of tokens at once. Or maybe the algorithm behind an algorithmic stablecoin, a type of stablecoin that uses code and market incentives instead of collateral to stay pegged gets overwhelmed during a market crash. We’ve seen it before: TerraUSD collapsed in 2022 because its mechanism couldn’t handle panic selling. Even USDC, backed by real dollars, briefly depegged in 2023 after Silicon Valley Bank failed. These aren’t theoretical risks—they’re real events that cost people real money.
When a stablecoin depegs, the damage spreads fast. DeFi protocols that use it as collateral freeze. Lending platforms liquidate positions. Users who thought they were holding cash suddenly face losses. And because so many DeFi apps rely on these tokens, one depeg can trigger composability risks, the hidden danger of interconnected smart contracts where one failure cascades through the whole system. You don’t need to be holding a risky token to get hurt. If you’re staking, lending, or swapping on any major DeFi platform, you’re exposed.
The posts below dig into exactly how this plays out. You’ll find real cases like DIGG’s failure to track Bitcoin, the quiet collapse of Wrapped VSG, and how DeFi’s interconnected nature turns small cracks into full-blown crashes. You’ll also see how stablecoins like USDC and DAI power the entire ecosystem—and why their stability isn’t guaranteed. Whether you’re holding stablecoins as a safe haven or using them to trade altcoins, you need to know what can go wrong. This isn’t theory. It’s survival.
Stablecoin Depegging Risks and History: What Happens When $1 Isn't $1
Stablecoin depegging can wipe out value overnight. Learn how USDT and UST failed, what causes depegs, and which stablecoins are actually safe to use today.