What happens when a stablecoin depegs?

A stablecoin depeg is when a coin meant to hold a fixed value, usually $1, trades noticeably above or below that level. A depeg is a meaningful break from that target, often caused by doubts about whether the coin can actually be swapped back for a dollar. What happens next depends on why it broke.

Why do stablecoins lose their peg?

Most dollar stablecoins are traded in two places. In the primary market, approved business customers create and redeem coins directly with the issuer at $1. In the secondary market, everyone else trades on exchanges at whatever price buyers and sellers agree on. When the exchange price slips below $1, approved customers can buy cheap coins and redeem them with the issuer for a full dollar. That arbitrage normally pulls the price back.

A depeg tends to happen when that loop breaks. Holders may fear the reserves are not all there, or redemptions may slow down or stop. Then sellers on exchanges have nowhere to go but other buyers, and the price can fall quickly. Our guide to what a stablecoin is covers the main designs.

What happened in the USDC depeg?

On Friday, March 10, 2023, Silicon Valley Bank failed. That night, Circle said it could not withdraw $3.3 billion of USDC reserves held there, about 8% of the total. Because banks were closed for the weekend, Circle could not process redemptions, and USDC dropped to about 86 cents on exchanges.

The contagion spread. Other stablecoins that relied on USDC, such as Dai, also slipped below $1, while some holders fled to USDT, which briefly traded slightly above $1. On Sunday evening, US authorities said all SVB depositors would be protected. USDC was back at its peg on Monday once Circle resumed redemptions. A Federal Reserve analysis later noted that even stablecoins with high-quality reserves can be fragile under stress. See USDT vs USDC for how the two largest coins differ.

What was the Terra Luna collapse?

TerraUSD (UST) was an algorithmic stablecoin. Rather than holding cash reserves, it was meant to keep its value because it could be swapped with a sister token, LUNA. Its backers also promoted yields of up to 20% through a lending app called Anchor.

In May 2022, UST lost its peg, and UST and LUNA both fell close to zero. Unlike USDC, there was no pool of dollar assets to fall back on, so the peg never returned. In February 2023, the SEC sued Terraform Labs and its founder, alleging they misled investors about UST's stability.

What happens to holders when a stablecoin depegs?

Holders who sell during a depeg lock in whatever price the market offers. Those who can redeem directly with the issuer may get $1 back if the reserves are intact, but most retail holders cannot redeem directly and depend on exchanges. If the reserves are lost or never existed, the coin may not recover. US rules for payment stablecoins have also been changing, as explained in what the GENIUS Act is. These details reflect events and rules as of October 2026.