Stablecoin Depeg
A breakdown in the mechanism maintaining a stablecoin's price peg to a fiat currency, resulting in sudden and potentially permanent loss of value.
Also known as: stablecoin collapse, depeg event, UST collapse
Last reviewed: 10 June 2026
Stablecoins are designed to maintain a consistent value (typically $1 USD) through algorithmic mechanisms, collateral backing, or centralised fiat reserves. A depeg event occurs when the coin trades significantly below its target price, either temporarily (a liquidity crisis) or permanently (a collapse of the underlying mechanism).
The most dramatic example was the 2022 collapse of the algorithmic stablecoin TerraUSD (UST), which lost essentially all value over days, wiping out tens of billions in capital including savings of retail investors who had been drawn in by high-yield staking programmes built on the protocol.
Consumers holding stablecoins should understand the backing mechanism: are reserves audited? Is the peg algorithmic (higher risk) or fiat-backed (lower risk but dependent on custodian solvency)? High-yield stablecoin programmes are particularly dangerous if the yield depends on demand for the associated token rather than real revenue, as the incentive structure collapses when demand falls.