Depeg

There is no universal threshold: in practice a depeg is identified when the deviation exceeds the normal noise band and persists. Typical causes include a confidence crisis that triggers mass redemptions, reserve exposure to a failing counterparty, a design flaw in models without full collateral, or temporary illiquidity in decentralized markets even when reserves are intact. A depeg can be transient and recoverable, or terminal.

It is the risk metric that defines a stablecoin's robustness. Both MiCA and the GENIUS Act require redemption at par precisely to minimize structural depeg risk. For a treasury or compliance team, monitoring peg deviation and reserve quality is part of counterparty analysis before moving capital across these rails.

In May 2022, TerraUSD (UST) suffered a terminal depeg and fell to residual values within days, the reference case for the risk of models without full collateral. In March 2023, USDC went through a transient depeg to around 0.87 dollars when exposure of part of Circle's reserves to a failed bank became known, recovering parity within days once the funds were guaranteed. DAI, with partial USDC collateral, experienced a brief knock-on effect. The technical lesson is that a robust redemption mechanism and high reserve quality are the best defense.