A Stablecoin Is Supposed to Never Move From $1. Here's Exactly How One Actually Breaks the Peg
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On 11 March 2023, a token built to always equal $1 traded at $0.87. Nobody hacked it. It had a bank problem.
That is a stablecoin depeg: a stablecoin (a crypto token meant to hold a steady price, almost always one US dollar) slips away from its "peg" (the fixed price it promises). This post walks through how it happens, using two real cases that broke in very different ways.
A stablecoin does not stay at $1 by magic. It stays there because holders believe they can swap one coin for one real dollar, at any time.
That belief is the whole product. If enough people doubt it, they all try to swap at once. This is a run, the same thing that happens when depositors rush a bank.
There are two main designs. One is backed by real assets in a reserve, such as cash and short-term government bonds. The other is algorithmic, which means a computer rule tries to hold the price, with no reserve of real dollars behind it.
Each design breaks in its own way.
USDC is backed by reserves, so it looks safe. It was mostly safe. Then a bank failed.
Circle, the company behind USDC, said it had $3.3 billion of its roughly $40 billion in reserves at Silicon Valley Bank, about 8% (CNN Business, CoinDesk). The bank had just been shut down.
Look at the maths. If 8% of the backing is frozen, then 92% is still there. The coin was probably fine. But nobody could be sure how much would come back, and being unsure was enough.
USDC fell to a low near $0.87 on 11 March. Big exchanges such as Coinbase and Binance paused conversions over that weekend (CoinDesk data). Once US authorities backed SVB depositors, the peg was back by 13 March.
TerraUSD (UST) had no reserve of dollars. Its peg relied on a swap with a sister token, LUNA.
The rule was simple. You could always burn 1 UST and receive $1 worth of LUNA. You could also burn $1 of LUNA and receive 1 UST. Traders were meant to profit from any gap, which would pull the price back to $1.
This works while LUNA is valuable. It fails when LUNA is not.
Here is the loop, step by step:
That is a death spiral: each step makes the next step worse.
In May 2022, it played out fast. UST was about the third-largest stablecoin, with roughly $18 billion in circulation. LUNA peaked above $80 with a market value around $40 billion. Over a few days, LUNA's supply went from hundreds of millions of tokens to trillions, and its price fell to a fraction of a cent (Decrypt, Forbes, Coinpaprika). UST did not recover.
For how the 20% yield on UST added fuel, see our earlier post on stablecoin yield risk.
| USDC (March 2023) | UST (May 2022) | |
|---|---|---|
| Backing | Cash and short-term bonds | LUNA swap, no dollar reserve |
| Trigger | Part of reserve stuck at a failed bank | Selling that broke confidence in the swap |
| Low point | About $0.87 | Near zero |
| Outcome | Peg restored in about three days | Never restored |
Sources: figures above from the cited outlets, retrieved 29 September 2026. Low points and dates differ slightly between outlets, so treat them as approximate.
You cannot predict a depeg. You can read the warning signs.
None of these guarantee safety. They only tell you which kind of failure to worry about.
Words can hide a wobble that a chart shows plainly. Open the USDC page in NetWort and look at the price history. Find the March 2023 dip, then compare it with the rest of the line. That one look shows how "stable" a stablecoin has really been.