Depeg

A depeg happens when a stablecoin trades away from the value it is designed to hold. Most stablecoins aim to stay near one dollar, so a depeg usually means the token is trading below or above that mark on exchanges.

Several conditions can cause a depeg. Doubts about whether the reserves backing a token are sufficient can push holders to sell. Low liquidity can make it hard to trade at the intended price. Broad market stress, or a rush of redemptions, can move the price as well.

A depeg can be brief or lasting. Some tokens drift a fraction of a cent and return to value within hours as trading balances out. Others move further and stay there when the underlying concern is not resolved. A depeg is a market risk that applies to stablecoins generally, and the size and duration vary from one event to the next.