Depeg Dynamics
A stablecoin's peg is a social contract backed by mechanisms. When confidence breaks, a vicious feedback loop can form: price drops → redemptions increase → reserves deplete → price drops more. This is the "bank run" dynamic that took down UST ($40B), temporarily depegged USDC (March 2023), and threatens any stablecoin with insufficient reserves.
🌀 Confidence Spiral Simulator
Simulate how an initial shock triggers redemptions that drain reserves and push the price further from peg.
Final Price
$0.95
Reserves Left
85%
Rounds to Recover
3
Max Drawdown
-5.2%
📜 Historical Depegs
UST / TerraUSD — May 2022
$40B → $0
Algorithmic stablecoin backed by LUNA. Large UST sells on Curve triggered panic → LUNA mint spiral → both tokens went to zero in 72 hours. The classic death spiral.
USDC — March 2023
$0.87 low → recovered
$3.3B of USDC reserves stuck in Silicon Valley Bank collapse. Depegged to $0.87 over weekend. Recovered Monday when FDIC guaranteed deposits. Showed even fiat-backed coins carry counterparty risk.
DAI — March 2020 (Black Thursday)
$1.10 high
ETH crashed 45% in one day. Mass liquidations on MakerDAO. Some vaults liquidated for $0. DAI supply contracted → temporary premium above peg. Led to addition of USDC as collateral.
🛡️ Defense Mechanisms
REDEMPTION GATES
Rate-limit redemptions to prevent bank runs. USDC has daily limits. Adds delay but prevents cascades.
PSM (PEG STABILITY MODULE)
MakerDAO's PSM: swap USDC↔DAI at 1:1 with tiny fee. Creates hard floor/ceiling around peg.
DIVERSIFIED RESERVES
Spread reserves across banks, T-bills, on-chain. No single counterparty can break the peg.