What is a Depeg?
Quick Definition
A depeg occurs when a stablecoin's market price deviates significantly from its intended reference value, failing to maintain its expected price.
Full Definition
For a US dollar-denominated stablecoin, any sustained deviation above or below $1.00 constitutes a depeg. Depegs can be triggered by a variety of factors: concerns about reserve quality or solvency, sudden market panic, smart contract failures, regulatory action, or fundamental flaws in the stablecoin's design.
Why depegs can spiral
Minor, short-lived depegs are relatively common and usually self-correct through arbitrage. Severe depegs, however, can become self-reinforcing. As holders rush to redeem or sell, the price falls further, eroding confidence and triggering additional selling. Algorithmic stablecoins have historically been the most vulnerable to catastrophic depegs (TerraUSD's collapse in 2022 remains the most prominent example), but even fiat-backed stablecoins have experienced significant depeg events during periods of stress, often tied to questions about reserve quality or banking exposure.
How Steady is designed to resist depegs
Steady's design is built around the same principles that protect against depeg risk: full 1:1 backing with liquid, low-risk reserve assets; direct redemption available to qualified institutional investors at any time; and publication of reserve data through the Transparency Portal. Together, these create a structural anchor for the value of STDY and a transparent foundation for market confidence.
Related Terms
Algorithmic Stablecoin
ReadAn algorithmic stablecoin attempts to maintain its value through automated rules that adjust token supply based on market demand, rather than holding equivalent reserve assets.
Peg
ReadA peg is the fixed reference value a stablecoin is designed to track, typically a fiat currency like the US dollar.
Redemption
ReadRedemption is the process of exchanging a stablecoin for its underlying value (typically fiat currency) directly with the issuer.
Reserves
ReadReserves are the total pool of assets held by a stablecoin issuer to back the tokens in circulation.
Other Glossary Items
Learn about common and essential terms related to Steady and other stablecoin protocols.
AML
ReadAML (Anti-Money Laundering) refers to the laws, regulations, and procedures designed to prevent the use of financial systems for laundering the proceeds of crime.
APY
ReadAPY, or Annual Percentage Yield, is the standardized rate of return an asset generates over a year, including the effect of compounding.
Arbitrum
ReadArbitrum is a Layer 2 blockchain network built on top of Ethereum, designed to offer faster and cheaper transactions while inheriting Ethereum's security and infrastructure.
Asset Backing
ReadAsset backing refers to the real-world or on-chain assets held by the issuer to support the value of every token in circulation.
Asset Locking
ReadAsset locking refers to restricting access to funds for a defined period or condition, during which they cannot be transferred or used.
Asset Segregation
ReadAsset segregation is the practice of keeping client or backing assets separate from the issuer's operational funds, protecting them from the issuer's other obligations.
Audit
ReadAn audit is an independent examination of a protocol's code, reserves, or operations by qualified third parties to verify accuracy and compliance with stated claims.
Backing
ReadBacking refers to the assets or mechanisms that support a stablecoin's value and help it maintain its intended reference value.
Blockchain Network
ReadA blockchain network is the system of connected participants and infrastructure that validates, records, and maintains data on a specific blockchain.
Blockchain
ReadA blockchain is a distributed digital ledger that records transactions across a network of computers in a secure, transparent, and tamper-resistant way.
Bridge
ReadA bridge is a mechanism that enables the transfer of assets or data between different blockchain networks.
Clarity Act
ReadThe Clarity Act is a proposed US legislative framework intended to clarify the regulatory treatment of digital assets, defining when they should be treated as securities versus commodities.
Collateralization / Over-collateralization
ReadCollateralization refers to the ratio between the value of assets held in reserve and the value of tokens issued. Over-collateralization means holding more in reserves than the value of tokens issued.
Composability
ReadComposability refers to the ability of different protocols, contracts, and tokens on a blockchain to interact and combine with each other seamlessly.
Counterparty Exposure
ReadCounterparty exposure refers to the risk that another party, such as a bank, custodian, broker, or service provider fails to fulfill its obligations, potentially affecting the assets or funds it holds.
LearnMoreAboutSteady
Transparency Portal
reserves, statements, audits, smart contract, and more.
FAQs
Discover the basics about Steady in our frequently asked questions.
Contact Us
questions, feel free to get in touch. We'll be happy to help.
