How it works
Depegs can result from doubts about reserves, redemption bottlenecks, smart-contract problems, liquidity shortages or failure of an algorithmic stabilization mechanism.
What to check
Check both the design and the redemption path. A market discount can mean something very different for a fully redeemable reserve-backed token than for an algorithmic asset.
- Understand the stabilization mechanism
- Check redemption access
- Assess market liquidity
Limits and risks
Some depegs recover quickly while others become permanent. The word stablecoin describes an objective, not a guarantee.
Primary sources
Circle USDC↗Tether Transparency↗FATF: Virtual Assets↗General information only. Investment products can lose value, and terms, fees and regulation can change.