“Depeg-gate” is everywhere, but what does depeg actually mean?
We’re using it as a catch-all accusation, yet a single price dislocation is not the same as a Terra/Luna collapse.
The problem: depeg isn’t defined, but it’s deeply loaded. It implies issuer failure and reputational damage, when many incidents have nothing to do with the issuer at all.
Secondary markets are imperfect mirrors. They can reflect issuer health (redemption and collateral integrity) but only when the market plumbing works. If arbitrage is blocked or deposits are stuck, prices can drift without any issue at the issuer level.
We need language that separates market dysfunction from stablecoin dysfunction.
Here are 3 distinct realities of “depeg” (diagram: 3 shades of de-peg)
#1: Local Depeg – Market/Venue Issue
• One venue trades off-peg due to liquidity, freezes, or broken routing
• Arbitrage can’t correct it, but redemptions remain open and collateral is trusted
→ This was USDe on Friday, a local market event, not an issuer failure
#2: Widespread Depeg – Redemption Stress
• Redemptions are delayed, restricted, or uncertain
• Collateral is likely intact, but recovery is delayed. Time value risk drives discount
→ This was USDC in March 2023 (SVB weekend)
#3: Widespread Depeg – Collateral Loss
• The collateral is in question or impaired
→ This was Terra/Luna
“Depeg” should be reserved for #2 and #3, issuer-linked failures.
#1 is a venue problem, not a stablecoin crisis.
We’re using it as a catch-all accusation, yet a single price dislocation is not the same as a Terra/Luna collapse.
The problem: depeg isn’t defined, but it’s deeply loaded. It implies issuer failure and reputational damage, when many incidents have nothing to do with the issuer at all.
Secondary markets are imperfect mirrors. They can reflect issuer health (redemption and collateral integrity) but only when the market plumbing works. If arbitrage is blocked or deposits are stuck, prices can drift without any issue at the issuer level.
We need language that separates market dysfunction from stablecoin dysfunction.
Here are 3 distinct realities of “depeg” (diagram: 3 shades of de-peg)
#1: Local Depeg – Market/Venue Issue
• One venue trades off-peg due to liquidity, freezes, or broken routing
• Arbitrage can’t correct it, but redemptions remain open and collateral is trusted
→ This was USDe on Friday, a local market event, not an issuer failure
#2: Widespread Depeg – Redemption Stress
• Redemptions are delayed, restricted, or uncertain
• Collateral is likely intact, but recovery is delayed. Time value risk drives discount
→ This was USDC in March 2023 (SVB weekend)
#3: Widespread Depeg – Collateral Loss
• The collateral is in question or impaired
→ This was Terra/Luna
“Depeg” should be reserved for #2 and #3, issuer-linked failures.
#1 is a venue problem, not a stablecoin crisis.
See @vishalkgupta's tweet for Local vs Widespread
and more nuances of stablecoin pricing
and more nuances of stablecoin pricing
https://x.com/vishalkgupta/status/1977475062451315041
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