Who moved the stablecoin's peg?
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Who moved the stablecoin's peg?
Reviewing major de-anchoring events over the years.
Navigating Web3 tides with focused insightsAuthor: Viee, Core Contributor at Biteye
Editor: Denise, Core Contributor at Biteye
Over five years, we have witnessed stablecoins losing their pegs across multiple scenarios.
From algorithmic designs to high-leverage structures and cascading effects triggered by real-world bank failures, stablecoins are undergoing repeated cycles of trust reconstruction.
In this article, we attempt to connect several landmark stablecoin de-pegging events in the crypto industry between 2021 and 2025, analyze their underlying causes and impacts, and discuss the lessons these crises leave behind.
The First Avalanche: The Collapse of Algorithmic Stablecoins
If any single collapse first shook the narrative around "algorithmic stablecoins," it was IRON Finance in the summer of 2021.
At that time, the IRON/TITAN model on Polygon went viral. IRON was a partially collateralized stablecoin: partly backed by USDC and partly supported algorithmically through the value of its governance token TITAN. When large sell orders caused price instability, major holders began dumping, triggering a cascade of redemptions: redeeming IRON → minting and selling more TITAN → TITAN crash → further loss of IRON’s dollar peg.
This was a classic "death spiral":
Once the internal asset supporting the peg collapses in price, the mechanism has little room for recovery—de-pegging quickly leads to zero.
On the day TITAN crashed, even prominent U.S. investor Mark Cuban suffered losses. More importantly, it made the market realize for the first time that algorithmic stablecoins heavily rely on market confidence and internal mechanisms—once confidence collapses, the "death spiral" becomes unstoppable.
Collective Disillusionment: LUNA's Zeroing Out
In May 2022, the cryptocurrency world faced the largest stablecoin collapse in history—the simultaneous implosion of Terra’s algorithmic stablecoin UST and its sister token LUNA. At the time, UST ranked as the third-largest stablecoin with a market cap of $18 billion and was once considered a successful example of algorithmic stablecoins.
However, in early May, massive sell-offs of UST occurred on Curve and Anchor, gradually pushing its price below $1, triggering sustained redemption pressure. UST rapidly lost its 1:1 dollar peg, plunging from nearly $1 to under $0.3 within days. To maintain the peg, the protocol massively inflated LUNA supply to redeem UST, causing LUNA’s price to plummet.
In just a few days, LUNA dropped from $119 to nearly zero, wiping out almost $40 billion in market value, while UST fell to mere cents. The entire Terra ecosystem collapsed within a week. The fall of LUNA made the industry truly understand:
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Algorithms themselves cannot create value—they only redistribute risk;
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Mechanisms can easily enter irreversible spiral patterns under extreme market conditions;
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Investor confidence is the only safety net—and this net is the easiest to break.
This time, global regulators also brought "stablecoin risks" into compliance focus for the first time. The U.S., South Korea, the EU, and others introduced strict restrictions on algorithmic stablecoins.
It's Not Just Algorithms: USDC and the Ripple Effects of Traditional Finance
Algorithmic models are clearly flawed—but does that mean centralized, fully-reserved stablecoins are risk-free?
In 2023, the Silicon Valley Bank (SVB) crisis erupted. Circle admitted that $3.3 billion of USDC reserves were held at SVB. Amid market panic, USDC briefly de-pegged to $0.87. This was purely a "price de-peg"—a short-term doubt over payment capacity triggered market stampede.
Luckily, the de-peg was temporary. The company quickly issued transparent announcements, promising to cover potential shortfalls with its own funds. Ultimately, after the Federal Reserve announced deposit protections, USDC restored its peg.
This shows that a stablecoin’s "peg" depends not only on reserves but also on confidence in the liquidity of those reserves.
This episode also reminds us that even the most traditional stablecoins cannot be fully insulated from risks in traditional finance. Once reserve assets depend on real-world banking systems, their vulnerability becomes inevitable.
A False Alarm? The USDe Circulating Loan Turmoil
Recently, the crypto market experienced an unprecedented October 11th market plunge scare. The stablecoin USDe was caught in the storm, but ultimately the de-peg was only a temporary price deviation—not a fundamental mechanism failure.
USDe, issued by Ethena Labs, once ranked among the top three largest stablecoins globally. Unlike USDT and USDC, which hold full cash reserves, USDe uses an on-chain delta-neutral strategy to maintain its peg. In theory, this "spot long + perpetual short" structure can withstand volatility. Indeed, during normal markets, this design proved stable and allowed users to earn a base annual yield of 12%.
Beyond its core mechanism, some users independently layered a "circular loan" strategy: using USDe as collateral to borrow other stablecoins, converting them back into more USDe, and re-staking—layering leverage and stacking lending protocol incentives to boost yields.
Then on October 11, sudden macro headwinds hit: Trump announced steep tariffs on China, sparking market panic and mass sell-offs. While USDe’s core pegging mechanism remained intact, a confluence of factors led to temporary price deviation:
First, some users used USDe as margin for derivatives; extreme price movements triggered contract liquidations, creating heavy sell pressure. Second, the leveraged "circular loan" structures on certain lending platforms faced successive liquidations, amplifying the sell-off. Third, exchange withdrawals were hindered by on-chain gas issues, preventing arbitrageurs from efficiently correcting the price gap.
In the end, multiple mechanisms were simultaneously overwhelmed, causing short-term panic. USDe briefly dropped from $1 to around $0.6 before recovering. Unlike cases where assets vanish, in this event, no assets were lost—only temporarily constrained by macro headwinds, liquidity crunches, and clearance bottlenecks, resulting in a temporary imbalance in the peg.
After the incident, the Ethena team released a statement clarifying that system functions were normal and collateralization sufficient. They later announced plans to enhance monitoring and increase collateral ratios to strengthen the funding pool’s buffer capacity.
The Aftershocks Continue: Chain Reactions Across xUSD, deUSD, and USDX
Before the shockwaves from the USDe incident had faded, another crisis erupted in November.
USDX is a compliant stablecoin launched by Stable Labs, designed to meet EU MiCA regulatory standards and pegged 1:1 to the U.S. dollar.
Yet around November 6, USDX’s price rapidly fell below $1 on-chain, crashing down to approximately $0.3—a near 70% loss in value. The trigger was xUSD, a yield-bearing stablecoin issued by Stream, losing its peg after an external fund manager reported around $93 million in asset losses. Stream immediately suspended deposits and withdrawals, and amid panic selling, xUSD plunged from $1 to $0.23.
After xUSD collapsed, ripple effects quickly spread to Elixir and its stablecoin deUSD. Elixir had previously lent 68 million USDC to Stream—accounting for 65% of deUSD’s total reserves—with xUSD used as collateral. When xUSD’s price dropped over 65%, deUSD’s asset backing instantly unraveled, triggering massive redemptions and a sharp price decline.
The contagion didn’t stop there. Market panic soon spilled over to other similarly structured yield-bearing stablecoins like USDX.
In just a few days, the overall stablecoin market cap erased over $2 billion. A single protocol failure escalated into a sector-wide liquidation, exposing flaws in mechanism design and proving that DeFi components are highly interconnected—risk is never isolated.
The Triple Test: Mechanism, Trust, and Regulation
Looking back at the de-pegging incidents of the past five years, one stark truth emerges: the biggest risk of stablecoins is that people assume they are “stable.”
From algorithmic models to centralized custody, from innovative yield-bearing designs to complex cross-chain stablecoins, these pegging mechanisms can collapse or go to zero overnight—not necessarily due to poor design, but often because of broken trust. We must acknowledge that stablecoins are not just products—they are structures of mechanistic credit built upon a chain of assumptions that “will never break.”
1. Not all pegs are reliable
Algorithmic stablecoins often rely on governance token buybacks and mint/burn mechanisms. Once liquidity dries up, expectations collapse, or the governance token crashes, prices can tumble like dominoes.
Fiat-backed stablecoins (centralized): These emphasize "USD reserves," but their stability isn't fully decoupled from traditional finance. Bank risk, custodian risk, liquidity freezes, and policy fluctuations can all erode the underlying "promise." Even with sufficient reserves, if redemption capacity is impaired, de-peg risks remain.
Yield-bearing stablecoins: These integrate yield mechanisms, leverage strategies, or multi-asset portfolios into the stablecoin structure, offering higher returns but also hidden risks. Their operation depends not only on arbitrage paths but also on external custody, investment returns, and strategy execution.
2. Risk transmission in stablecoins spreads faster than we think
The xUSD collapse is a textbook case of "contagion effect": one protocol fails, another uses its token as collateral, a third employs a similar mechanism—all get dragged down together.
Especially in DeFi, stablecoins serve as collateral, counterparty, and liquidation tool. Once the "peg" loosens, the entire chain, DEX systems, and even broader strategy ecosystems react in unison.
3. Regulatory gaps: institutional safeguards still evolving
Currently, Europe and the U.S. are rolling out various classification-based regulatory drafts: MiCA explicitly denies the legitimacy of algorithmic stablecoins; the U.S. GENIUS Act aims to standardize reserve mechanisms and redemption requirements. These are positive trends, yet regulators still face challenges:
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The cross-border nature of stablecoins makes comprehensive oversight by any single country difficult.
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Complex models and deep interconnections between on-chain and off-chain assets make it hard for regulators to define their financial and liquidation characteristics.
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Disclosure practices are not yet fully standardized. While on-chain transparency is high, responsibilities of issuers and custodians remain blurry.
Conclusion: Crises as Catalysts for Industry Restructuring
Stablecoin de-pegging crises do more than warn us about mechanism risks—they force the entire industry toward healthier evolutionary paths.
On one hand, technical responses are actively addressing past vulnerabilities. For example, Ethena is adjusting collateral ratios and enhancing monitoring to use active management as a hedge against volatility.
On the other hand, industry transparency continues to improve. On-chain audits and regulatory requirements are becoming foundational for next-generation stablecoins, helping build trust.
More importantly, user awareness is evolving. An increasing number of users now pay attention to the underlying mechanisms, collateral structures, and risk exposures behind stablecoins.
The focus of the stablecoin industry is shifting—from "how fast can we grow" to "how stably can we operate."
After all, only by truly strengthening resilience can we build financial tools capable of enduring the next cycle.
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