Stablecoin Risks: What Can Go Wrong and How to Protect Your Money
When you hold a stablecoin, a cryptocurrency designed to maintain a steady value, usually tied to the U.S. dollar. Also known as pegged token, it's meant to be the safe harbor in crypto’s wild market. But here’s the truth: not all stablecoins stay stable. USDC dipped below $1 during the 2023 bank failures. TUSD lost its peg after its issuer froze withdrawals. Even DAI, the most trusted algorithmic stablecoin, has slipped to $0.89 during market panics. If you think stablecoins are just digital cash, you’re overlooking the cracks beneath the surface.
The biggest threat is the stablecoin peg, the mechanism that keeps a token’s value locked to a fiat currency like the dollar. Some stablecoins, like USDT and USDC, claim to be backed 1:1 by cash and short-term bonds. But who verifies those reserves? Not always the public. Others, like the failed TerraUSD, rely on complex algorithms and collateralized crypto assets—no bank accounts, no auditors, just code. When the market turns, those algorithms can’t hold. That’s when you see a algorithmic stablecoin, a type of stablecoin that uses smart contracts and incentives to maintain its value without direct asset backing crash hard. And when one stablecoin falls, it drags down whole DeFi systems. Composability sounds cool—until a broken peg triggers cascading liquidations across lending platforms, as seen in 2022 with LUNA and its sister token UST.
Then there’s the risk of regulation. If a stablecoin issuer gets shut down by the SEC or freezes withdrawals—like what happened with Celsius and BlockFi—your "stable" money vanishes overnight. Even if the token itself is fine, access to it gets blocked. And let’s not forget the hidden counterparty risk: your stablecoin is only as strong as the company behind it. No audits? No transparency? That’s not a currency—it’s a gamble dressed in a suit.
What you’ll find below isn’t theory. It’s real cases. Posts that break down how cross-chain bridges got exploited because stablecoins were moved between chains without proper checks. How DeFi protocols collapsed when their stablecoin collateral suddenly lost value. How fake airdrops pretended to offer "risk-free" stablecoin rewards while stealing private keys. These aren’t edge cases. They’re the new normal.
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.