Stablecoin Depeg Risk: Monitoring and Warning Signals

Stablecoins hold peg through either fiat reserves (USDC, USDT), crypto overcollateralization (DAI), or algorithmic mechanisms. Each failure mode is different. Depeg events in 2022–2023 — UST collapse, USDC's 0.87 print after SVB, DAI widening to 0.93 — show that "stable" is a probability, not a guarantee.

Three peg architectures, three risks

• Fiat-backed (USDC, USDT, PYUSD): risk is reserve quality and banking access. USDC depegged in March 2023 because $3.3B sat at Silicon Valley Bank; the peg recovered once the FDIC guaranteed deposits. Watch attestation reports for concentration in any single bank above 10% of reserves.
• Overcollateralized (DAI, LUSD): risk is collateral value collapse. DAI's collateral is heavily WETH and WBTC; a 40% ETH dump in hours can stress the peg. Monitor the surplus buffer and collateralization ratio — anything below 120% effective ratio is a warning.
• Algorithmic (FRAX, the dead UST): reflexive risk; redemption depends on a volatile governance token absorbing sell pressure. Avoid holding any algo stable where market cap of the supporting token is below 50% of the stable's supply.

Concrete warning signals

• Peg deviation > 0.5% for > 4 hours on the venue you hold on. Pull Curve 3pool balances: if the stable grows past 50% of pool TVL, redemption pressure is building.
• Redemption pause or delay. If the issuer announces delayed redemptions, exit immediately — Circle paused during SVB before USDC recovered.
• Reserve attestation overdue. USDC/USDT publish monthly; a 2-week delay is a red flag.
• Governance token -20% in 24h for algo stables — death spiral precursor.
• Funding rates on the stable's perp markets. Sustained negative funding on USDT perps signals market doubt about redeemability.

Action thresholds

• Reduce stable exposure to a single issuer to under 30% of cash holdings.
• If a depeg exceeds 2% for >24h, convert to a different stable or fiat within the next window — do not average down.
• Keep operational cash in USDC and T-bill-backed options; keep trading float split across two issuers to survive one freezing.