What are some famous stablecoin depegging events in history? What can we learn from them?

Famous Stablecoin Depegging Events in History

Hey everyone, I'm a crypto veteran who's weathered quite a few storms over the years. Today, let's talk about stablecoin depegging. Stablecoins are designed to be as stable as the dollar, but sometimes they "depeg," meaning their price deviates from $1 (or their target value), often causing major trouble. I'll break down a few famous examples in simple terms and share what lessons we can learn. Let's dive in step by step.

1. The TerraUSD (UST) and Luna Collapse (2022)

This is the most infamous disaster. TerraUSD was an algorithmic stablecoin, not backed by real reserves but maintained through a mechanism with another token, Luna. Simply put, it worked like an auto-balancing system: if UST fell below $1, Luna tokens would be burned to push its price back up.

But in May 2022, market panic combined with large sell-offs by "whales" caused UST to plummet below $0.90. The system tried rescuing it with Luna, but Luna’s price crashed by 99%, collapsing the entire ecosystem. Tens of billions were lost, and countless retail investors lost everything.

2. Iron Finance’s TITAN and IRON (2021)

Iron Finance was a DeFi project where IRON, a partially collateralized stablecoin, was backed by USDC and their native token TITAN. In June 2021, whales began dumping TITAN, causing IRON’s price to crash from $1 to near zero. The whole ordeal unfolded like dominoes—the project died within days.

This reminded me that DeFi mechanisms can be overly reliant on algorithms; panic can easily trigger chain reactions.

3. USDC’s Depegging During the SVB Crisis (2023)

USDC, issued by Circle, claims 100% backing by cash and bonds. In March 2023, Silicon Valley Bank (SVB) collapsed, trapping a portion of USDC’s reserves. USDC’s price briefly fell to $0.88, sparking widespread panic.

Fortunately, Circle later confirmed the reserves were secure, and the price quickly recovered. But this exposed how even "safe" stablecoins can be affected by traditional banking crises.

4. Tether (USDT)’s Minor Depegging Episodes

USDT, the largest stablecoin, has had several minor depegs. For example, in 2018, it dropped to $0.92 due to regulatory rumors and reserve concerns. During Terra’s collapse in 2022, it also briefly fell to $0.95.

USDT is often criticized for opaque reserves but has always bounced back. Still, it’s a reminder not to blindly trust marketing claims.

Others like DAI (MakerDAO’s stablecoin) also depegged briefly during the 2020 "Black Thursday" market crash but recovered through community governance.

What Can We Learn?

These events taught me valuable lessons—here’s how to avoid pitfalls:

Stablecoins aren’t 100% stable: They mimic the dollar, but their underlying mechanisms (reserves, algorithms) carry risks. Never put all your funds in one stablecoin—diversification is key.
Understand the underlying mechanics: Algorithmic coins like UST are high-risk, relying on market confidence. Once confidence crumbles, a snowball effect follows. Reserve-backed coins like USDC are safer, but reserve quality matters.
Market panic is a killer: Depegging often starts with sell-offs, spiraling into a vicious cycle. During volatility, stay calm—analyze news and data before acting.
Transparency and regulation are crucial: Many issues stem from opacity, like USDT’s reserve controversies. Choose stablecoins with audit reports or regulatory backing. Tighter regulations may improve safety.
Crypto is tied to traditional finance: USDC’s SVB crisis proved bank failures can spill into crypto. Never ignore macroeconomic news.

In short, stablecoins are "safe harbors" in crypto—but not absolute ones. Stay curious, keep learning, and never go all in. Share your experiences below—let’s discuss!