A stablecoin promises one thing: to be worth one unit of its reference currency, usually one US dollar. Most of the time it delivers. But “most of the time” is the important part. Stablecoins have broken their peg for hours, days and — in one famous case — forever. If you hold savings, salaries or trading capital in stablecoins, it is worth understanding what can go wrong, how big past depegs were, and how to keep the damage small if it happens again.
How a stablecoin keeps its peg
Fiat-backed stablecoins (USDT, USDC and many others) hold reserves — cash, bank deposits, short-term government bills, money-market funds — and let eligible customers redeem tokens for dollars. If the market price drops below $1, arbitrageurs buy cheap tokens and redeem them at $1, pushing the price back up. The peg is only as strong as the reserves and the redemption channel.
Crypto-collateralised stablecoins (such as DAI and its successors) are backed by over-collateralised crypto in smart contracts, with liquidations when collateral falls. They depend on collateral quality, oracles and liquidation mechanics.
Algorithmic stablecoins try to hold the peg with incentives and a companion token rather than full reserves. History has not been kind to them.
The main causes of a depeg
What history shows
TerraUSD (UST), May 2022. An algorithmic stablecoin with a market cap of tens of billions collapsed within days as its mechanism spiralled; it never recovered. The lesson: “stable” in the name is not a guarantee.
USDT, May 2022. During the same panic, USDT briefly traded below $1 on some venues — around 95 cents at the low on certain markets — while Tether processed billions in redemptions. It recovered within days.
USDC, March 2023. When Silicon Valley Bank failed while holding part of Circle’s reserves, USDC dropped to roughly 87–88 cents over a weekend. DAI, which was heavily backed by USDC at the time, followed it down. Both recovered after US authorities guaranteed the bank’s deposits.
These episodes show the typical shapes: algorithmic designs can fail completely; fiat-backed coins have mostly recovered after short, sharp dips tied to reserve access or panic.
Regulation is changing the picture
In the EU, MiCA treats dollar and euro stablecoins as e-money tokens with rules on reserves, redemption at par and issuer authorisation; many EU platforms restricted non-authorised stablecoins for EU users in 2025. In the US, the GENIUS Act, signed in July 2025, created a federal framework for payment stablecoins with reserve and redemption requirements. Regulation reduces some risks — reserve quality, disclosure — but cannot remove bank-failure risk, venue liquidity risk or the risk of your specific token version being bridged or frozen.
Estimating what a depeg would cost you
A simple way to think about exposure: loss = balance × (1 − market price), if you were forced to sell at the bottom. A $10,000 balance at a 3% depeg is a $300 paper loss; at 12% (like USDC in March 2023) it is $1,200. If you do not need to sell during the dip and the coin recovers, the loss stays on paper. The stablecoin network comparison includes a depeg calculator that also accounts for swap fees if you decide to switch coins during stress.
How to limit depeg risk
What to do during a depeg
Stablecoins for salaries and payments
If you are paid in stablecoins, a depeg affects your income directly. Convert what you need for living costs promptly, and treat the remainder as savings with the risks above. The crypto salary calculator shows how much reaches your bank after fees and spreads; adding a depeg scenario is as simple as lowering the rate.
Myths
“Stablecoins can’t go below $1 because they’re backed.” Backing helps arbitrage pull the price back, but only for those who can redeem — and only if reserves are accessible.
“If it depegs once, it’s finished.” Short dips have happened to the largest fiat-backed coins without lasting damage. Algorithmic collapses are a different category.
“All USDT is the same.” Native USDT on different chains is redeemable through Tether, but liquidity and accepted networks vary; bridged or fake tokens named USDT are different assets.
A practical allocation example
Suppose you keep $20,000 in stablecoins as an emergency fund and trading reserve. A simple, resilient setup might look like this:
If one issuer had a USDC-2023-style 12% dip, the worst-case paper loss would be under $1,000 — and two-thirds of the fund would be unaffected and immediately usable. The same $20,000 in a single stablecoin on a single chain would expose the whole fund to one event. The cost of diversifying is a couple of swaps and a little attention.
Signals worth watching
None of these predicts a depeg on its own, but together they tell you when to stop adding to a position and check your exit routes.
Finally, remember that depeg risk and freeze risk are different. A depeg affects every holder of a token; a freeze targets specific addresses. Keeping clean funds, avoiding unknown counterparties and never accepting stablecoins from sources you cannot explain protects you from the second.
Summary
Depeg risk is small most days and large on a few. Know the type of stablecoin you hold, spread balances across issuers and native tokens, keep an eye on the network and venue, avoid stacking leverage or opaque yield on top, and decide in advance what you would do if the price dipped. Track your stablecoin share in the portfolio tracker so the exposure is a choice, not an accident.