A review of major stablecoin de-pegging events over the past five years: a triple test of mechanism, trust, and regulation.
Author: Viee, a core contributor to Biteye *The full text is approximately 5000 words, and the estimated reading time is 13 minutes. Over the past five years, we have witnessed stablecoins de-pegging in multiple scenarios. From algorithms and high-leverage designs to the chain reaction of real-world bank failures, stablecoins are undergoing one trust rebuild after another. In this article, we attempt to connect several landmark stablecoin de-pegging events in the crypto industry between 2021 and 2025, analyze the underlying causes and impacts, and explore the lessons learned from these crises. The First Avalanche: The Collapse of Algorithmic Stablecoins If there was one crash that first shook the narrative of "algorithmic stablecoins," it was IRON Finance in the summer of 2021. At that time, the IRON/TITAN model on Polygon became a viral sensation. IRON is a partially collateralized stablecoin: partly backed by USDC and partly backed by the value of the governance coin TITAN through an algorithmic dependency. As a result, when large TITAN sell orders made the price unstable, large holders began to sell, triggering a chain reaction of bank runs: IRON redemptions → minting and selling more TITAN → TITAN collapse → IRON stablecoin further lost its anchoring ability. This is a classic "death spiral": Once the price of the internal assets that are being supported and anchored plummets, the mechanism will have little room for repair and will eventually decouple and return to zero. On the day TITAN collapsed, even prominent American investor Mark Cuban was not spared. More importantly, it made the market realize for the first time that algorithmic stablecoins are highly dependent on market confidence and internal mechanisms, and once confidence collapses, it is difficult to prevent a "death spiral." Collective disillusionment: LUNA returns to zero In May 2022, the cryptocurrency world witnessed the largest stablecoin crash in history, with Terra's algorithmic stablecoin UST and its sister coin LUNA both collapsing. UST, then the third-largest stablecoin with a market capitalization of $18 billion, was once considered a successful example of algorithmic stablecoins. However, in early May, UST experienced a massive sell-off on Curve/Anchor, gradually falling below $1 and triggering a sustained run on the exchange. UST quickly lost its 1:1 peg to the US dollar, and its price plummeted from nearly $1 to less than $0.3 within days. To maintain the peg, the protocol issued a large amount of LUNA to redeem UST, resulting in a subsequent collapse in the price of LUNA. In just a few days, LUNA plummeted from $119 to near zero, wiping out nearly $40 billion in market value. UST dropped to a few cents, and the entire Terra ecosystem vanished within a week. It can be said that LUNA's demise made the entire industry truly realize for the first time: Algorithms themselves cannot create value; they can only allocate risk. The mechanism is highly susceptible to entering an irreversible spiral structure under extreme market conditions; Investor confidence is the only trump card, and it's the easiest to fail. This time, global regulators have for the first time included "stablecoin risks" in their compliance considerations. The United States, South Korea, the European Union, and other countries have successively imposed strict restrictions on algorithmic stablecoins. It's not just the algorithm that's unstable: the ripple effects of USDC on traditional finance. With numerous problems in the algorithm model, are centralized, 100% reserve stablecoins truly risk-free? In 2023, the Silicon Valley Bank (SVB) scandal erupted when Circle admitted to holding $3.3 billion in USDC reserves with SVB. Amid market panic, the USDC briefly de-pegged to $0.87. This incident was a classic example of "price de-pegging": short-term payment capability was questioned, triggering a market sell-off. Fortunately, this de-pegging was only a brief panic, and the company quickly issued a transparent announcement, promising to cover any potential shortfall with its own funds. Ultimately, the USDC was able to re-peg after the Federal Reserve announced its decision to protect deposits. It is clear that the "anchor" of stablecoins is not only reserves, but also confidence in the liquidity of reserves. This turmoil also reminds us that even the most traditional stablecoins cannot be completely isolated from traditional financial risks. Once the pegged assets rely on the real-world banking system, their vulnerability is unavoidable. A false alarm of "de-anchoring": The USDE revolving loan crisis Recently, the cryptocurrency market experienced an unprecedented 10/11 crash panic, and the stablecoin USDe was caught in the eye of the storm. Fortunately, the eventual de-pegging was only a temporary price deviation and did not indicate a problem with its internal mechanism. USDe, issued by Ethena Labs, once ranked among the top three in global market capitalization. Unlike USDT and USDC, which have equivalent reserves, USDe uses an on-chain Delta-neutral strategy to maintain its peg. Theoretically, this "long spot + short perpetual" structure can withstand volatility. In practice, this design has proven stable in calm markets and allows users to earn a basic annualized return of 12%. On top of the already well-functioning mechanism, some users have spontaneously developed a "revolving loan" strategy: pledging USDe to borrow other stablecoins, then exchanging them back for more USDe to continue pledging, layering leverage, and using lending protocol incentives to increase annualized returns. Until October 11th, a sudden negative macroeconomic event occurred in the US: Trump announced high tariffs on China, triggering panic selling in the market. During this process, the USDe's stable peg itself did not suffer systemic damage, but due to a combination of factors, a temporary price deviation occurred: On the one hand, some users used USDe as margin for derivatives, and due to extreme market conditions triggering contract liquidation, a large amount of selling pressure appeared in the market. At the same time, the "revolving loan" structure with leverage on some lending platforms also faced liquidation one after another, further exacerbating the selling pressure on stablecoins. On the other hand, due to on-chain gas issues during the withdrawal process of exchanges, the arbitrage channel was not smooth, and the price deviation after the stablecoins were de-pegged could not be corrected in time. Ultimately, multiple mechanisms collapsed simultaneously, causing a brief market panic. USDe briefly fell from $1 to around $0.6 before recovering. Unlike some "asset failure" type de-anchoring incidents, the assets in this event did not disappear; the temporary imbalance in the anchoring was caused by factors such as macroeconomic headwinds, liquidity constraints, and liquidation paths. Following the incident, the Ethena team issued a statement clarifying that the system was functioning normally and that collateral was sufficient. Subsequently, the team announced it would strengthen monitoring and increase the collateral ratio to enhance the liquidity pool's capacity. Aftershocks continue: a chain reaction of sell-offs in xUSD, deUSD, and USDX. The aftershocks of the USDe incident had not yet subsided when another crisis erupted in November. USDX is a compliant stablecoin launched by Stable Labs, which complies with EU MiCA regulatory requirements and is pegged 1:1 to the US dollar. However, around November 6th, the price of USDX quickly fell below $1 on-chain, plummeting to as low as about $0.3, instantly losing nearly 70% of its value. The trigger was the depegging of xUSD, a yield-generating stablecoin issued by Stream, due to its external fund manager reporting approximately $93 million in asset losses. Stream immediately suspended deposits and withdrawals on its platform, and xUSD quickly fell below its peg during the panic sell-off, dropping from $1 to $0.23. Following the collapse of xUSD, the chain reaction quickly spread to Elixir and its stablecoin deUSD. Elixir had previously lent 68 million USDC to Stream, representing 65% of its total deUSD reserves, with Stream using xUSD as collateral. When xUSD fell by more than 65%, the asset backing of deUSD collapsed instantly, triggering a massive run on the cryptocurrency and causing its price to plummet. The run on the banks didn't stop there. The panic selling then spread to other similar yield-generating stablecoins, such as USDX. In just a few days, the overall market capitalization of stablecoins evaporated by over $2 billion. A protocol crisis ultimately escalated into a liquidation of the entire sector, revealing not only problems with the mechanism design but also demonstrating that the high-frequency coupling between the internal structures of DeFi means that risks are never isolated. The Triple Test of Mechanism, Trust, and Regulation When we look back at the cases of de-anchoring over the past five years, we find a glaring fact: the biggest risk of stablecoins is that everyone assumes they are "stable". From algorithmic models to centralized custody, from yield-generating innovations to composite cross-chain stablecoins, these pegging mechanisms can experience collapses or overnight losses, often due to either design flaws or a breakdown in trust. We must acknowledge that stablecoins are not merely products, but rather a mechanism-based credit structure built upon a series of assumptions that "will not be broken." 1. Not all anchors are reliable. Algorithmic stablecoins often rely on governance token buybacks and minting mechanisms. Once liquidity is insufficient, expectations collapse, and the governance token plummets, the price can fall like dominoes. Fiat reserve stablecoins (centralized): These emphasize "dollar reserves," but their stability is not entirely detached from the traditional financial system. Bank risk, custodian risk, liquidity freezes, and policy fluctuations can all erode the "promise" behind them. Even when reserves are ample but redemption capacity is limited, the risk of de-pegging remains. Yield-based stablecoins: These products integrate yield mechanisms, leverage strategies, or multiple asset portfolios into the stablecoin structure, bringing higher returns but also hidden risks. Their operation relies not only on arbitrage opportunities but also on external custody, investment returns, and strategy execution. 2. The risk transmission of stablecoins is much faster than we imagined. The collapse of xUSD is a classic example of the "contagion effect": when one protocol has a problem, another uses its stablecoin as collateral, and a third designs a stablecoin with a similar mechanism, and all of them are dragged down. Especially in the DeFi ecosystem, stablecoins are collateral assets, counterparties, and liquidation tools. Once the "anchor" is loosened, the entire chain, the entire DEX system, and even the entire strategy ecosystem will be affected and react. 3. Weak supervision: the process of filling the regulatory gaps is still ongoing. Currently, Europe and the United States have successively introduced various draft regulations categorized by type: MiCA explicitly denies the legal status of algorithmic stablecoins, and the US GENIUS Act attempts to regulate reserve mechanisms and redemption requirements. This is a positive trend; however, regulation still faces the following challenges: The cross-border nature of stablecoins makes them difficult for any single country to fully regulate. The model is complex, and there is a high degree of interconnection between on-chain and real-world assets. Regulatory agencies have not yet reached a consensus on its financial and liquidation attributes. Information disclosure is not yet fully standardized. Although on-chain transparency is high, the responsibilities of issuers, custodians, etc. remain relatively vague. Conclusion: Crisis brings opportunities for industry restructuring The crisis of stablecoins de-anchoring not only reminds us of the risks of the mechanism, but also forces the entire industry to move towards a healthier evolutionary path. On the one hand, technology is proactively addressing past vulnerabilities. For example, Ethena is adjusting its collateral ratio and strengthening monitoring in an attempt to hedge against volatility risk through proactive management. On the other hand, industry transparency is also continuously improving. On-chain audits and regulatory requirements are gradually becoming the foundation of the next generation of stablecoins, which helps to enhance trust. More importantly, users' understanding is also evolving. More and more users are beginning to pay attention to the underlying details of stablecoins, such as their mechanisms, collateral structures, and risk exposures. The focus of the stablecoin industry is shifting from "how to grow quickly" to "how to operate stably". After all, only by truly improving risk resistance can we create financial instruments that can truly support the next cycle.
