A Short History of Stablecoin Depegs

By TurboUSDPublished September 21, 20262 min read

A stablecoin makes one promise: one token, one dollar. A depeg is when that promise breaks and the token trades meaningfully below its target. Depegs are rarer than critics claim and more common than issuers admit — and each one reveals where the risk in "stable" money really lives.

TerraUSD (UST), May 2022: the algorithmic collapse

UST was an algorithmic stablecoin: instead of cash reserves, its peg relied on a mint-and-burn arbitrage with its sister token, LUNA. At its peak it had a market cap of roughly $18 billion. In May 2022 large withdrawals triggered a spiral — UST slipped below $1, LUNA was minted in enormous quantities to defend it, LUNA's price collapsed, and within days UST was trading for a few cents. Tens of billions of dollars in value disappeared in about a week.

Tether (USDT), May 2022: the wobble

In the panic that followed, even Tether — the largest stablecoin — briefly fell to around $0.95 on some exchanges as holders rushed to redeem. It recovered within days after processing billions in redemptions, but the episode showed that a peg is ultimately a question of trust in reserves that outsiders cannot fully see in real time.

USD Coin (USDC), March 2023: a bank run by proxy

USDC is backed by cash and short-term US Treasuries, about as conservative as a stablecoin gets. Yet when Silicon Valley Bank failed in March 2023, Circle disclosed that around $3.3 billion of USDC's reserves were held there. Over a weekend USDC fell to roughly $0.87, dragging down DAI and other stablecoins that used it as collateral. The peg returned only after US authorities guaranteed the bank's deposits.

Smaller failures

Around these headline events, many smaller stablecoins lost their pegs for good — from partially collateralized experiments like Iron Finance's IRON in 2021 to newer designs that could not survive a run. The pattern is consistent: a stablecoin is stable until the mechanism behind it is tested at scale.

What depegs teach

Every depeg comes down to the same thing: the token is only as good as an issuer, a reserve, a bank or an algorithm its holders cannot control. Unstablecoins approach the problem from the other side. They make no peg promise, so there is no peg to break — the risk is visible in the price every day instead of hidden until a crisis. That is not safer, just more honest: unstablecoins are highly volatile and can go to zero.

Compare both designs in stablecoin vs unstablecoin, or read why the dollar peg itself is part of the problem in what is currency debasement.