Bar chart showing what $1,000 in a stablecoin is worth if its price falls to $0.97, $0.90, $0.50 and $0.10
Stablecoins are meant to be the calm corner of crypto: one coin is supposed to stay worth one dollar. Many people use them to park money between trades, send payments or earn a yield. But "stable" describes the goal, not a guarantee. Sometimes a stablecoin slips below $1, and a few have collapsed completely.
In this guide you will learn what a depeg is, the main types of stablecoins and how each can fail, what happened in two well-known cases, what a depeg would do to your money (with checkable numbers), and a checklist of questions to ask before you hold one.
Last updated: November 2026.
What Is a Depeg?
A stablecoin has a "peg", a target price, usually $1. A depeg happens when the market price moves away from that target and stays there for a while. A tiny wobble, such as $0.998 or $1.002, is normal. A depeg is a larger and longer move, for example to $0.95 or $0.90, or in the worst case a fall toward zero.
Depegs happen when people lose confidence that the coin can really be exchanged for a dollar, or when the mechanism that keeps the price in line stops working.
The Main Types of Stablecoins and How They Can Fail
| Type | How it tries to stay at $1 | Main risks |
|---|---|---|
| Fiat-backed | The issuer holds reserves such as cash, bank deposits or short-term government bonds against the coins issued | Reserves may not be fully liquid or fully there. A bank failure, poor transparency, redemption limits or legal problems can break confidence |
| Crypto-collateralized | Users lock more crypto than the value of the stablecoin they create (overcollateralization), and smart contracts manage the system | A sharp market crash, smart contract bugs, or trouble with the collateral itself, which can include other stablecoins |
| Algorithmic | Code and incentives, often with a companion token, try to keep the price near $1 with little or no real reserves | Highly vulnerable to a loss of confidence. If the incentive loop reverses it can spiral to zero |
Two Well-Known Cases
- TerraUSD (UST), May 2022. UST was an algorithmic stablecoin that relied on a companion token to hold its peg. When confidence broke, the mechanism turned against itself, UST lost its peg and fell far below $1, and the system collapsed, wiping out a very large amount of value in days. It is the classic example of an algorithmic design failing.
- USDC, March 2023. USDC is a fiat-backed stablecoin. When its issuer disclosed that part of its cash reserves was held at Silicon Valley Bank, which was failing, the price fell to roughly 90 cents (The Block reported it staying near $0.90 at one point). It recovered after authorities moved to protect the bank's depositors. The lesson here is different: even a fully backed coin can be shaken if the place holding its reserves has a problem.
The first case ended in a collapse and the second in a recovery, but in both, people who sold during the panic locked in losses, and people who needed to use the money at that moment could not get a full dollar for each coin.
What a Depeg Does to Your Money
If you hold $1,000 in a stablecoin and its price falls, the math is simple:
| Stablecoin price | Value of your $1,000 | Loss | Loss as % |
|---|---|---|---|
| $1.00 | $1,000 | $0 | 0% |
| $0.97 | $970 | $30 | 3% |
| $0.90 | $900 | $100 | 10% |
| $0.50 | $500 | $500 | 50% |
| $0.10 | $100 | $900 | 90% |
Is the Yield Worth the Risk?
Some platforms pay interest on stablecoins. Suppose you earn 5% a year on $1,000, which is $50 per year. Here is what a depeg would erase compared with that yield:
| Price after a depeg | Loss on $1,000 | Loss compared with one year of 5% yield |
|---|---|---|
| $0.99 | $10 | 20% |
| $0.97 | $30 | 60% |
| $0.95 | $50 | 100% |
| $0.90 | $100 | 200% |
A drop to $0.97 wipes out about 60% of a year's yield. A drop to $0.95 erases a whole year of it. Those numbers are why very high stablecoin yields deserve extra caution: the higher the yield, the more likely it comes from a risky place. You can see how a rate turns into earnings with our free Staking Calculator.
Warning Signs to Watch
- Little transparency about reserves. No clear, regular reports on what backs the coin.
- Yields far above the rest of the market. If a stablecoin pays much more than others, ask where the money comes from.
- Reliance on a companion token to hold the peg, which is how algorithmic designs usually work.
- The price slips below $1 and stays there, especially on several exchanges.
- Redemption limits, delays or sudden rule changes from the issuer.
- News about problems with the banks or assets that hold the reserves.
Questions to Ask Before You Hold a Stablecoin
- What backs it? Cash, bonds, crypto, or only a mechanism?
- Who holds the reserves, and can I check them? Look for regular reports and independent attestations.
- Can I redeem directly with the issuer? And at what minimum amount and with what fees?
- How long has it kept its peg, and how did it behave in stressful moments?
- Where is it held? On an exchange, in your own wallet or in a platform that lends it out?
- Is it available and legal where I live? Rules differ by country.
Ways to Reduce the Risk
- Do not put all your cash in one stablecoin. Splitting among a few reputable ones reduces the damage if one fails, though they can fall together.
- Be cautious with high yield. If the return looks too good for a "stable" asset, treat it as a risk, not a gift.
- Keep your own wallet access. Coins stuck on a failed platform can be lost even if the stablecoin itself holds.
- Avoid algorithmic designs with little reserve. The record of this type is poor.
- Do not rely on stablecoins for money you need immediately. Keep real emergency savings in regular, insured accounts where available.
- Do not panic-sell without checking. Look at the issuer's statements and several price sources first, but also know your limits.
Key Takeaways
- A stablecoin aims to stay at $1, but that is a goal, not a guarantee.
- Fiat-backed, crypto-collateralized and algorithmic coins fail in different ways.
- UST collapsed in 2022, and USDC briefly fell to about 90 cents in 2023 before recovering.
- A small depeg can erase a year of stablecoin yield, so high yields carry real risk.
- Check what backs a coin, who holds the reserves and how you can redeem it.
Frequently Asked Questions
Can a stablecoin go to zero?
Yes. Some have, especially algorithmic ones with little real backing. Even reserve-backed coins can lose value if the reserves are not what they seem or cannot be accessed.
Are stablecoins safe?
They are generally less volatile than other crypto in normal times, but they are not risk-free. They carry issuer, reserve, smart contract and platform risks.
What should I do if my stablecoin depegs?
Do not act only on rumors. Check the issuer's official channels, compare prices on several exchanges and see whether redemptions are working. Decisions made in panic often lock in losses, but waiting is not always safe either, so assess how the coin is backed.
Is a stablecoin the same as cash in the bank?
No. Bank deposits may be covered by deposit insurance in some countries, while stablecoins usually are not. Your protection depends on the issuer and the rules where you live.
To learn who we are and how we approach these topics, read our About page.
Educational content only, not financial, tax or legal advice. Stablecoins can lose their peg, and you can lose some or all of your money. Prices and percentages in the examples are illustrations. Rules, reserves and risks differ between stablecoins and countries and change over time, so research the specific coin and platform before you use it.
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