Stablecoin Depeg History: UST, USDC, USDe and xUSD Explained
Lesson 4 of 9 · Intermediate
What is a depeg and where does it start?
A depeg means a stablecoin’s price moves meaningfully, and for some time, away from its target value, usually one dollar. A wobble of a few hundredths of a percent on a normal day does not count; we talk about a depeg when the mechanism that should restore the price stops working quickly.
Almost every major depeg has started from one of three paths:
- Doubt about backing: the market stops believing that one redeemable dollar really stands behind every token.
- Liquidity shortage: the backing may exist, but it cannot be turned into cash quickly, and sellers are faster than arbitrageurs.
- Venue or oracle problems: the price breaks on one exchange or in one contract while the rest of the market is roughly fine.
The four cases below each show one of these paths. The point of reviewing them is not to frighten you; it is to show you what to look for when a stablecoin’s price starts to move.
UST, May 2022: the collapse of an algorithmic model
UST was the stablecoin of the Terra network and had no sufficient outside backing. Its peg relied on an arbitrage mechanism: one UST could always be swapped for one dollar’s worth of the network’s second token, LUNA, and the reverse. While demand for UST was strong, the loop worked.
In May 2022 large withdrawals and UST sales began. Each time someone swapped UST for LUNA, new LUNA was minted, which added selling pressure on LUNA. The fall in LUNA reduced confidence in UST further, and UST selling grew. This is the death spiral: the very mechanism meant to hold the peg intensified the crisis, and both tokens effectively lost their value.
Lesson: if a stablecoin’s backing is ultimately the project’s own token, then on a crisis day the backing and the liability fall together. High yields offered on such a stablecoin are usually a sign of risk, not of opportunity.
USDC and the SVB failure, March 2023: when the backing gets stuck
USDC is a fiat-backed stablecoin. In March 2023 the US bank Silicon Valley Bank collapsed, and part of USDC’s cash reserves was held at that bank. The news broke over a weekend, when banks are closed and minting and redemption are effectively halted. As a result, USDC’s secondary-market price briefly fell visibly below one dollar.
After US authorities announced that the bank’s depositors would receive all of their money, confidence returned and USDC went back to its peg.
Lesson: even “real” backing carries custodian risk. Where reserves are held, how concentrated they are in a few banks, and the opening hours of the banking system are all part of a centralised stablecoin’s risk. Another point is that crypto trades 24 hours a day, but the banking infrastructure behind it does not, so weekend crises can be sharper.
USDe on one venue, 10 October 2025: a local depeg
10 October 2025 was one of the biggest liquidation days in crypto history. According to CoinGecko, more than 19 billion dollars of positions were liquidated in 24 hours and more than 1.6 million accounts were affected.
On that day USDe, a synthetic dollar with a delta-neutral structure, fell to about 0.65 dollars on Binance’s order book according to a 21Shares analysis, while it stayed roughly on peg in on-chain liquidity pools. The problem was not the backing itself. That exchange’s internal price was used to value collateral, and the sharp drop in that local price created more liquidations on the same exchange.
Lesson: “the price of a stablecoin” is not a single number; it can differ on each venue. If you use a stablecoin as collateral for leveraged trades, you need to know what price the venue uses to value that collateral.
xUSD and Stream Finance, November 2025: contagion among synthetic dollars
According to a Pharos case study, in November 2025 the project Stream Finance announced a loss of about 93 million dollars and its synthetic stablecoin xUSD lost its peg. The crisis spread to two other stablecoins, deUSD (later wound down) and USDX, because these projects were linked in a chain of lending and collateral.
One instructive detail: some lending vaults valued xUSD at a fixed, manually set price of one dollar. So even when the market priced xUSD far lower, the contract treated it as healthy, and the loss surfaced later and bigger.
Lesson: when the yield on a synthetic dollar comes from several layers of strategy and lending, the risk of each layer passes to the next. The longer and more opaque the chain, the faster the contagion.
Summary: four depegs, four questions
| Case | Path | Question to ask |
| UST, 2022 | Doubt about backing | Is the backing external or the project’s own token? |
| USDC, 2023 | Stuck reserves | Where, and with whom, are the reserves held? |
| USDe, 2025 | Venue and oracle | Where does this platform get its collateral price? |
| xUSD, 2025 | Lending chain and contagion | Where does the yield come from and how many layers of risk sit behind it? |
None of these questions predicts the future, but they help you know which risk you are accepting.
Common mistakes
- Treating every small price wobble as a depeg and selling in a panic.
- Assuming a stablecoin’s price is the same on every exchange and pool.
- Using lesser-known stablecoins as collateral for leveraged trades without knowing their price source.
- Being drawn in by the high yield of stablecoins whose backing is the project’s own token.
- Buying a depegged stablecoin on the assumption that it will “surely return to one dollar”.
What do volume and data say here?
In a depeg, market data shows whether the problem is local or structural:
- Compare venues: look at the price on several exchanges and DEX pools at once. If only one venue has dropped and the rest are healthy (as with USDe in October 2025), you are probably facing a liquidity or local oracle problem.
- Volume and pool balance: in stablecoin pools, if one token’s share rises sharply, everyone is selling it. A volume jump together with that imbalance signals real exit.
- On-chain supply: a rapid fall in total supply (redemption or burning) shows large holders leaving.
- Liquidations: if the stablecoin is collateral for leveraged positions, a spike in liquidations on the same exchange can intensify the drop.
This data is for understanding conditions and is not a cue to buy a “cheap depeg”.
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Frequently asked questions
What does a stablecoin depeg mean?
It means the stablecoin’s price moves meaningfully, and for some time, away from its target value, usually one dollar, because the mechanism that restores the price is not working quickly enough.
Can Tether depeg too?
Any stablecoin can drift from its peg for a while under severe stress. Tether’s risk relates mostly to the issuer, its reserves and the liquidity of redemption; no stablecoin carries an absolute guarantee.
After a depeg, does a stablecoin always return to one dollar?
No. USDC returned, but UST and xUSD did not. Recovery depends on real backing, liquidity and confidence.
Education only, not a recommendation to buy or sell; we never give signals. Price examples are illustrative. Test any method on a demo account first, with strict risk management.