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What Happens When a Stablecoin Loses Its Peg?
A stablecoin can fall below its $1 target without immediately collapsing. This article explains how such a drop, called a depeg, happens, how arbitrage trading can restore the $1 price, and when that restoring method can fail.
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What happened
A stablecoin can fall below its $1 target without immediately collapsing. This article explains how such a drop, called a depeg, happens, how arbitrage trading can restore the $1 price, and when that restoring method can fail.
Confirmed
Global impact / market context
If arbitrage fails to restore a stablecoin's $1 price, holders could lose money because the coin may trade below its intended value. Companies accepting stablecoins as payment might receive less cash than expected when converting, hurting revenue.
Analyst inference
Most stablecoins aim to hold a steady $1 value by letting traders profit from small price gaps. In a depeg, the gap grows, arbitrage weakens, and investors may sell holdings, pushing the price further from $1.
Analyst inference
What to watch
- Watch whether a stablecoin trades below $1 and how long it stays below that level, because a short drop differs from a lasting depeg. Confirmed
- Watch for arbitrage trades that buy the coin cheaply and redeem it for $1, which could restore the peg if the redemption channel still works. Proposed
- Watch redemption access: if holders cannot swap the coin for $1, arbitrage cannot fix the price, increasing the chance the depeg becomes permanent. Analyst inference