Crypto glossary
Depeg
A depeg happens when a token designed to track another asset, such as a dollar stablecoin, trades noticeably away from its target price for a period of time.
Stablecoins, wrapped tokens and liquid staking tokens are meant to hold a fixed relationship with something else: one dollar, one bitcoin or one staked ether. A depeg is when the market price drifts away from that target, usually downward, because holders doubt they can redeem the token at full value or because liquidity dries up.
In March 2023 USDC briefly fell below $0.90 after its issuer disclosed that part of its reserves was held at the failed Silicon Valley Bank; it returned to $1 once the deposits were guaranteed. Terra's UST in May 2022 is the extreme case of a depeg that never recovered. Liquid staking tokens such as stETH have also traded at discounts during market stress.
Small deviations of a few tenths of a cent are normal. A large or lasting depeg can trigger liquidations in lending protocols that value the token at par and losses for anyone forced to sell.
Example
If a dollar stablecoin trades at $0.95 on exchanges, it has depegged by 5%: a holder of 10,000 units who sells at that moment receives $9,500 instead of $10,000.
Related terms
Latest articles on Depeg
- Stablecoin Depeg: Parity Is an Outcome, Not a Premise
- Strategy-Backed Stablecoin Depegs, Raising Fresh Concerns
- Beyond the Breach: rsETH’s Depeg Exposes the Urgent Need for a New Bridge Security Standard
- USDe Depeg Sparked Devastating Fallout for Binance Over the Weekend
- Synthetix Proposes Staking Incentives to Tackle sUSD Depeg, Founder Issues Warning
