What does depeg mean?
A stablecoin is only as steady as the confidence behind it. A depeg is what the market looks like when that confidence wobbles.
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A depeg is when a stablecoin's market price moves away from the value it is designed to hold, usually one US dollar. It typically happens when holders doubt the reserves or cannot redeem quickly. Some depegs reverse within days; others turn into a collapse.
What causes a stablecoin to depeg?
The US Treasury's 2021 report on stablecoins explains the core risk: if an issuer does not honour redemption requests — or users simply lose confidence that it can — a run can follow, a self-reinforcing cycle of redemptions and forced sales of reserve assets. Reserves that may lose value or become hard to sell, weak safekeeping and unclear redemption rights all make that loss of confidence more likely.
A Federal Reserve note on the 2023 USDC episode adds a practical point: when redemptions with the issuer pause, the only exit left is selling on exchanges, and that selling pushes the price down. The peg mechanism itself is covered in how stablecoins maintain their peg.
What happened when USDC depegged in 2023?
When Silicon Valley Bank failed in March 2023, Circle said it could not withdraw $3.3 billion of USDC reserves held there — around 8% of the total, according to the Fed note. With redemptions shut over the weekend, USDC traded as low as 86 cents. After US authorities announced on Sunday, 12 March that depositors would be protected, the price recovered fully once Circle resumed redemptions on Monday, 13 March.
How is a depeg different from a collapse?
A depeg is a symptom; what happens next depends on what backs the coin. Compare the USDC episode with TerraUSD (UST), an algorithmic stablecoin that, according to the SEC's 2023 complaint, lost its peg in May 2022 and, with its sister token, fell close to zero. More detail is in the TerraUSD collapse explained.
| USDC, March 2023 | UST, May 2022 | |
|---|---|---|
| Design | Reserve-backed | Algorithmic |
| Trigger | Part of reserves stuck at a failed bank | Loss of confidence in the mechanism |
| Outcome | Low of 86 cents; recovered within days | Fell close to zero (per SEC allegations) |
Questions readers ask
Can a stablecoin depeg upwards?
Yes. A depeg is any move away from the target, up or down. The best-known cases, USDC in 2023 and UST in 2022, were falls below $1.
Is a depeg the same as default?
No. A depeg is a market price; a default would mean the issuer cannot pay redemptions. A depeg can be an early warning of one, which is why reserve quality matters.
A depeg is the market pricing in doubt about a stablecoin's reserves or its redemption door. Whether it heals or spirals depends on what really backs the token, so read reserve reports before you rely on a peg.
Sources
- Board of Governors of the Federal Reserve System, In the Shadow of Bank Runs: Lessons from the Silicon Valley Bank Failure and Its Impact on Stablecoins (FEDS Notes) (2025)Primary source
- President's Working Group on Financial Markets, FDIC and OCC (US Treasury), Report on Stablecoins (2021)Primary source
- US Securities and Exchange Commission, SEC Charges Terraform and CEO Do Kwon with Defrauding Investors in Crypto Schemes (2023-32) (2023)Primary source
Educational content only — not financial, investment, legal or tax advice. Crypto-assets are high-risk and you could lose all the money you put in. Rules differ by country; check with your national regulator. See our risk disclosure and editorial policy.
Read next
- Stablecoins & Payments · Beginner
What is a stablecoin?
Tokens designed to stay at $1: what backs them, how redemption works, and why runs happen.
- Stablecoins & Payments · Beginner
How do stablecoins keep their peg?
Primary vs secondary markets, arbitrage with real fee schedules, and the three things that break a peg.
- Stablecoins & Payments · Intermediate
What happened to TerraUSD?
The UST–LUNA design, the 2021 rescue, the 2022 run, and what the SEC and DOJ found afterwards.
- Stablecoins & Payments · Beginner
USDT vs USDC
Issuer, licence, reserves, reports, redemption and freeze rules, compared side by side from primary documents.
