Stablecoins & depegs
A "stable" coin is only as stable as what stands behind it.
Builder · 9 min · Updated 2026-11-08
💡 Casino chips
Casino chips are worth $1 because you trust the cashier will swap them back for $1. If people start doubting the casino has the cash, everyone rushes the cashier at once — and chips trade at a discount outside. A stablecoin is a chip; its reserves and redemption process are the cashier.
Three designs
| Type | Backed by | Examples | Key risk |
|---|---|---|---|
| Fiat-backed | Cash, bank deposits, short-term government bills | USDT, USDC | Reserve quality, bank failure, issuer freezes, regulation |
| Crypto-collateralised | More crypto than issued (over-collateralised) | DAI/USDS | Sharp collateral crashes, oracle failures |
| Algorithmic | Mostly a mechanism + a sister token | TerraUSD (failed 2022) | Death spiral when confidence breaks |
Famous depegs
- TerraUSD (May 2022): the algorithmic stablecoin lost its peg and collapsed towards zero, erasing tens of billions in value across UST and LUNA within days.
- USDC (March 2023): briefly fell to about $0.87 after Silicon Valley Bank — which held part of its reserves — failed. It recovered after US authorities guaranteed deposits.
Regulation is arriving
The EU's MiCA regulation sets rules for stablecoin issuers, and the US passed the GENIUS Act in July 2025 creating a federal framework for payment stablecoins (reserves, redemption, supervision). Rules differ by country — and regulated does not mean risk-free.
Five questions before trusting a stablecoin
- What exactly backs it, and is that verified by independent attestations?
- Can holders redeem directly, and how fast?
- Who can freeze tokens?
- How concentrated is liquidity on a few venues?
- What happened in its worst week historically?
🧮 Practical example: the bank run maths
Key takeaways
- Stable = only as good as reserves + redemption.
- Algorithmic designs have failed spectacularly.
- Even top fiat-backed coins have briefly depegged.
- Check attestations, redemption and freeze powers.
Education only — not financial advice.