Stablecoins: How These Trusted Crypto Coins Can Get Depegged

Stablecoins help in ensuring the pegging of their market value or price to other outside references, such as gold or US dollar.

Crypto enthusiasts are worried after the USDC Stablecoin de-pegging this month.

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On March 11, a few stablecoin assets de-pegged from their $1 parity. Concern among the crypto community and stablecoin supporters grew bigger following a report of the second-largest stablecoin USDC falling below $0.90. With this fall, the value plummeted to a low of $0.877 per coin. However, USDC is not the only coin to get de-pegged in history. But before we explain how some other stablecoins got famously de-pegged, let's understand what depegging is, and how stablecoins work.

What Is Depegging?

Depegging is a process where the value of a stablecoin deviates or changes significantly from its pegged value. This can happen for various reasons, including market conditions, liquidity issues and regulatory changes. In simple terms, depegging means abandoning a fixed exchange rate between two or more currencies by becoming detached from each other.

What Is Stablecoin?

Stablecoins are cryptocurrencies with pegged, tied or fixed value to a separate currency, commodity, or any other financial instrument. The main objective of stablecoins is to provide an alternative to most other cryptocurrencies that have high volatility such as Bitcoin (BTC). In simple terms, Stablecoins are more useful than more-volatile cryptocurrencies when it comes to the medium of exchange.

Why Are Stablecoins Important?

Although Bitcoin remains to be most popular cryptocurrency, it has a problem with very high volatility when it comes to its prices.

Now, traders use Bitcoin for routine transactions amid the high volatility. But, most traders are also afraid of losing a huge amount of money because of high volatility and risks with the coin's prices. This is when stablecoins play a significant role in offering and resolving the issue of risks and stability in the prices as well as transactions.

How Does Stablecoin Operate?

Stablecoins help in ensuring the pegging of their market value or price to other outside references. With this, it becomes more useful than most of the highly volatile cryptocurrencies that act as a medium of exchange. For instance, Stablecoins can be pegged to either the US dollar or gold to control the supply flow. 

What Happened With USDC Stablecoin?

On March 11, USDC Stablecoin got de-pegged from its $1 parity. USDC is the second-largest stablecoin which is issued by Circe Financial. After Circle Financial said $3.3 billion of cash supporting USD Coin suffered from hiccups when Silicon Valley Bank collapsed this month. This resulted in a de-pegging of USDC from the US dollar.

Subsequent to the de-pegging of USDC, multiple big crypto exchanges suspended USDC trades. The list of organisations that suspended trades with USDC are Coinbase, Binance, Singapore-based crypto exchange Crypto.com, etc.

The recent de-pegging of USDC has affected multiple other stablecoins such as GUSD, DAI, FRAX, USDP, and USDD.

Is It The First Major Depegging? 

Well, there was a very big de-pegging of UST Coin in may last year. Terra Luna (LUNA) crashed over 85 percent on May 11, 2022, which was the reason behind the de-pegging of Terra USD (UST) stablecoin. Although Terra took several measures to make sure that the UST remained stable, it suffered from de-pegging.

More than $2 billion worth of UST was unstaked last year along with hundreds of millions of UST being sold out quickly. This pushed the price down to $0.80 from $0985 during that time. All this happened as the UST Stablecoin got depegged.

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