Stablecoins Depeg: Causes, Mechanisms & Risks Explained

• Stablecoins are cryptocurrencies designed to have a stable value relative to a specific asset.
• USDC issuer Circle announced that USDC had depegged from the U.S. dollar after $3.3 billion of its $40 billion in USDC reserves were stuck in the now defunct Silicon Valley Bank.
• Other stablecoins followed suit in depegging from the U.S. dollar due to this collateral influence.

What Are Stablecoins?

Stablecoins are a type of cryptocurrency designed to have a stable value relative to a specific asset or a basket of assets, typically a fiat currency such as the U.S. dollar, euro or Japanese yen. Stablecoins are designed to offer a “stable” store of value and medium of exchange compared with more traditional cryptocurrencies like Bitcoin (BTC) and Ether (ETH), which can be highly volatile. Fiat money, cryptocurrencies, and commodities like gold and silver are examples of assets used to collateralize or “back” stablecoins. Tether (USDT), USD Coin (USDC) and Dai (DAI) are a few examples of stablecoins pegged to the U.S