Depeg

A depeg is when an asset that is meant to track another, such as a stablecoin pegged to the US dollar or a liquid staking token pegged to ETH, trades significantly away from its target value.

Small deviations of a fraction of a cent are normal for large stablecoins. A serious depeg usually reflects doubts about the backing or about the ability to redeem. Notable examples include TerraUSD collapsing in May 2022, USDC briefly falling to around 88 cents in March 2023 during the Silicon Valley Bank crisis, and stETH trading at a discount to ETH in June 2022 during a wave of liquidations.

Depegs can be temporary, if the backing is sound and redemptions continue, or permanent, if the collateral is lost. Holding large balances in a single stablecoin concentrates this risk. Before using a stablecoin or pegged token, find out what backs it, who can redeem it and whether reserves are independently verified.