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What does depeg mean?
A depeg is when a token designed to track another asset, usually a stablecoin meant to equal one dollar, trades noticeably away from that value. Most depegs are drops below the target, caused by doubts about the reserves, the collateral or the design.
What it means for you
In a depeg, selling on a market locks in the lower price, while redeeming at full value may be open only to the issuer's direct customers, or paused. Liquid staking tokens can also trade below the ETH they represent. Before treating a stablecoin as cash, check how, and by whom, it can be redeemed.
A common mistake: “If my stablecoin depegs, I can always redeem it with the issuer for one dollar.”
In fact: Direct redemption is usually limited to the issuer's institutional customers, sometimes with large minimums, and it can pause. Most holders can only sell on a market at whatever price it offers.
How it works
A peg holds while traders can profit from closing any gap: buy below the target and redeem, or mint at the target and sell above it. A depeg starts when that loop breaks or confidence fails: reserves are in doubt, collateral prices fall, or redemptions stop. Holders then have a reason to exit first, which deepens the fall, much like a bank run. In March 2023, when part of a major issuer's reserves was caught at a failed bank and redemptions could not run over a weekend, its coin slipped well below one dollar until redemptions resumed.
Sources: Federal Reserve FEDS Notes: The stable in stablecoins, Federal Reserve FEDS Notes: Primary and Secondary Markets for Stablecoins, ethereum.org: Pooled staking · checked 4 October 2026
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Educational content, not financial advice. Written by hand and checked against the source named above. Something wrong? Tell us and we reply within two business days.