Stablecoin Depegs: A Cautionary Tale of Confidence and Concentration

The stablecoin market has experienced several depegs in recent years, where the price of a digital dollar breaks away from its peg to $1. A depeg occurs when traders and arbitrageurs lose confidence in a stablecoin's issuer or reserves, causing the price to drop below $1.

The redemption machine that keeps the market price pinned at $1 is not a law, but an economic promise made by the issuer. This means that even if a stablecoin trades above $1, there is no guarantee that it will remain so, as traders can mint new tokens for exactly $1 and sell them.

The four most notable depegs in recent years were caused by different factors: confidence problems, banking issues, counterparty risks, and design flaws. The October 2018 $USDT scare was a confidence problem, while the March 2023 $USDC depeg was more of a banking problem.

The November 2025 xUSD collapse was a counterparty problem, as it relied on outside fund managers to generate yield for holders. When one of those managers disclosed a loss, Stream froze withdrawals and xUSD cratered from $1 to as low as $0.24 within hours.