In plain English
What Depeg means
A stablecoin described as pegged to one US dollar aims to trade near $1, but its market price can move away from that level. A depeg can arise when holders rush to sell or redeem, market liquidity weakens, reserve assets lose value, arbitrage is impaired, confidence falls, or the stabilization mechanism fails. A small, brief deviation is not necessarily a structural failure.
Why it matters
The difference between a stated peg and an actual market price can affect trading, collateral, payments, and liquidation rules. For instance, a protocol may value a stablecoin at an oracle price while users can only sell it below that value in the market. Redemption rights, reserve quality, governance, liquidity, and operational resilience all influence depeg risk.
Example
A stablecoin intended to equal $1 falls to $0.94 on trading venues during heavy selling. A holder of 10,000 coins can sell them immediately for about $9,400 before fees, not $10,000. If direct redemption at par is available, timely, and trusted, arbitrage may help narrow the gap; if it is delayed or uncertain, the discount can persist. Values are simplified.
Quick answers
Common questions
Is every stablecoin price move a depeg?+
Not necessarily. Small and short-lived deviations can occur because of trading spreads, fees, market fragmentation, or normal supply and demand. The term is generally used when the deviation is notable, persistent, or raises concern about the stabilizing mechanism.
Can an over-peg also be a depeg?+
Yes. A stablecoin trading materially above its intended reference value has also departed from its peg. Although attention often focuses on prices below par, either direction can disrupt trading, collateral valuation, and redemption incentives.
Sources