A depeg occurs when a stablecoin’s value diverges from the asset it’s pegged to, due to factors like market volatility, liquidity issues, or regulatory changes.

Glossary Entry: Depeg

Encounter the term ‘depeg’ and find yourself puzzled? You’re not alone. A depeg is a significant event in the world of cryptocurrency, particularly concerning stablecoins. Let’s break it down.

Understanding Depeg

Imagine a stablecoin, a type of cryptocurrency designed for stability, tethered to an asset like the US dollar. Its value should mirror the asset—until it doesn’t. That’s a depeg. It happens when the stablecoin’s value shifts away from its pegged asset, either rising above or falling below the expected 1:1 ratio.

Causes of a Depeg

While stablecoins aim to curb volatility, they’re not immune to it. Events like the UST depeg in May 2023 demonstrate the potential for dramatic shifts in value, underscoring the inherent risks in the crypto market.