Who moved the anchor of stablecoins? A review of major de-pegging events over the years

Author: @viee7227, Core Contributor of Biteye

Over the past five years, we have witnessed stablecoins decouple in various scenarios.

From algorithms to high-leverage designs, and the chain reaction of real-world bank failures, stablecoins are undergoing repeated trust reconstruction.

In this article, we attempt to connect several landmark stablecoin decoupling events in the crypto industry from 2021 to 2025, analyze the underlying reasons and impacts, and explore the lessons these crises leave us.

The First Avalanche: The Collapse of Algorithmic Stablecoins

If there was a collapse that first shook the narrative of "algorithmic stablecoins," it would be IRON Finance in the summer of 2021.

At that time, the IRON/TITAN model on Polygon was all the rage. IRON is a partially collateralized stablecoin: part of it is backed by USDC, while the other part relies on the value of the governance token TITAN. As a result, when large sell orders of TITAN caused the price to become unstable, whales began to sell off, triggering a chain of bank runs: IRON redemption → minting and selling more TITAN → TITAN collapse → IRON stablecoin further lost its peg.

This was a classic "death spiral":

Once the price of the internal assets supporting the peg plummets, the mechanism has little room for repair, decoupling to zero.

On the day of the TITAN collapse, even well-known 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; once confidence collapses, it is difficult to prevent a "death spiral."

Collective Disillusionment: LUNA Goes to Zero

In May 2022, the crypto market witnessed the largest stablecoin collapse in history, with the algorithmic stablecoin UST of the Terra ecosystem and its sister coin LUNA both dying suddenly. At that time, UST, with a market cap of up to $18 billion, was once considered a successful example of algorithmic stablecoins.

However, in early May, UST was massively sold off on Curve/Anchor, gradually falling below $1, triggering a continuous bank run. UST quickly lost its 1:1 peg to the dollar, with the price plummeting from nearly $1 to less than $0.3 within days. To maintain the peg, the protocol massively minted LUNA for UST redemption, resulting in a collapse of LUNA's price.

In just a few days, LUNA fell from $119 to nearly zero, with a total market cap evaporating by nearly $40 billion, and UST dropped to a few cents, leading to the complete destruction of the Terra ecosystem within a week. It can be said that the demise of LUNA made the entire industry truly realize for the first time:

• Algorithms themselves cannot create value; they can only distribute risk;
• Mechanisms can easily enter an irreversible spiral under extreme conditions;
• Investor confidence is the only trump card, and this card is the easiest to become ineffective.

This time, global regulators also first included "stablecoin risks" into their compliance vision. The United States, South Korea, the European Union, and other countries subsequently imposed strict restrictions on algorithmic stablecoins.

Not Only Algorithms Are Unstable: The Chain Reaction of USDC and Traditional Finance

With numerous issues in algorithmic models, do centralized, 100% reserve-backed stablecoins have no risks?

In 2023, the Silicon Valley Bank (SVB) incident broke out, and Circle admitted that $3.3 billion of USDC reserves were held at SVB. Amid market panic, USDC briefly decoupled to $0.87. This incident was a complete "price decoupling": short-term payment capabilities were questioned, triggering market panic.

Fortunately, this decoupling was only a brief panic; the company quickly issued a transparent announcement, promising to cover potential shortfalls with its own funds. Ultimately, after the Federal Reserve's decision to guarantee deposits was announced, USDC was able to restore its peg.

It can be seen that the "peg" of stablecoins is not only about reserves but also about confidence in the liquidity of those reserves.

This incident 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 vulnerabilities become inevitable.

A False Alarm of "Decoupling": The USDE Loop Loan Incident

Recently, the crypto market experienced an unprecedented panic due to the 10·11 crash, with the stablecoin USDe caught in the eye of the storm. Fortunately, the decoupling turned out to be a temporary price dislocation rather than an internal mechanism failure.

USDe, issued by Ethena Labs, once ranked among the top three stablecoins globally by market cap. Unlike USDT, USDC, and others with equivalent reserves, USDe employs an on-chain Delta-neutral strategy to maintain its peg. Theoretically, this "spot long + perpetual short" structure can withstand volatility. In fact, it proved stable during calm market conditions and supported users in obtaining a 12% base annual yield.

On top of the originally well-functioning mechanism, users spontaneously layered a "loop loan" strategy: collateralizing USDe to borrow other stablecoins, then exchanging them back for more USDe to continue staking, leveraging multiple layers and stacking lending protocol incentives to increase annual returns.

Until October 11, when a sudden macroeconomic downturn occurred in the U.S., and Trump announced high tariffs on China, triggering market panic selling. During this process, the stable anchoring mechanism of USDe itself did not encounter systemic damage, but under various compounding factors, a temporary price dislocation occurred:

On one hand, some users used USDe as collateral for derivatives; due to extreme market conditions triggering contract liquidations, there was significant selling pressure in the market; at the same time, the leveraged "loop loan" structure on some lending platforms also faced liquidations, further exacerbating the selling pressure on stablecoins; on the other hand, during the withdrawal process on exchanges, gas issues on-chain led to arbitrage channels being blocked, preventing timely correction of the price deviation after the stablecoin decoupled.

Ultimately, multiple mechanisms were simultaneously breached, leading to market panic in a short time, with USDe briefly dropping from $1 to around $0.6, before recovering. Unlike some "asset failure" type decouplings, the assets in this round of events did not disappear; they were merely constrained by macroeconomic liquidity and liquidation paths, leading to a temporary imbalance in the peg.

After the incident, the Ethena team issued a statement clarifying that the system was functioning normally and that collateral was sufficient. Subsequently, the team announced that it would strengthen monitoring and increase collateral rates to enhance the buffer capacity of the fund pool.

Aftershocks: The Chain Reaction of xUSD, deUSD, and USDX

As the aftershocks of the USDe incident had not dissipated, another crisis broke out in November.

USDX is a compliant stablecoin launched by Stable Labs, which meets the EU's MiCA regulatory requirements and is pegged 1:1 to the dollar.

However, around November 6, the price of USDX rapidly fell below $1 on-chain, plummeting to about $0.3, losing nearly 70% of its value in an instant. The trigger for the event was the decoupling of the yield-bearing stablecoin xUSD issued by Stream, caused by its external fund manager reporting approximately $93 million in asset losses. Stream then urgently suspended platform deposits and withdrawals, and xUSD quickly fell below its peg, dropping from $1 to $0.23 amid panic selling.

After the collapse of xUSD, the chain reaction quickly transmitted to Elixir and its issued stablecoin deUSD. Elixir had previously borrowed $68 million USDC from Stream, accounting for 65% of its stablecoin deUSD reserves, while Stream used xUSD as collateral. When xUSD's decline exceeded 65%, the asset support for deUSD instantly collapsed, triggering a large-scale bank run, and the price subsequently plummeted.

This bank run did not stop there. The panic selling in the market then spread to other yield-bearing stablecoins with similar models, such as USDX.

In just a few days, the overall market cap of stablecoins evaporated by over $2 billion. A protocol crisis ultimately evolved into a liquidation of the entire sector, revealing not only issues in mechanism design but also proving the high-frequency coupling between internal structures in DeFi, where risks are never isolated.

The Triple Test of Mechanism, Trust, and Regulation

When we look back at the decoupling cases of the past five years, we find a striking fact: the biggest risk of stablecoins is that everyone thinks they are "stable."

From algorithmic models to centralized custody, from yield-bearing innovations to composite cross-chain stablecoins, these pegging mechanisms can experience bank runs or go to zero overnight, often due to design issues or a collapse of trust. We must acknowledge that stablecoins are not just a product but a mechanism of credit structure, built on a series of "assumptions that will not be broken."

1. Not all pegs are reliable

• Algorithmic stablecoins often rely on governance token buyback and burn mechanisms. Once liquidity is insufficient, expectations collapse, and governance tokens plummet, prices can fall like a house of cards.

• Fiat-backed stablecoins (centralized): They emphasize "dollar reserves," but their stability is not completely detached from the traditional financial system. Bank risks, custodian risks, liquidity freezes, and policy fluctuations can erode the "commitment" behind them. When reserves are sufficient but redemption capabilities are limited, the risk of decoupling still exists.

• Yield-bearing stablecoins: These products incorporate yield mechanisms, leverage strategies, or a combination of various assets into the stablecoin structure, bringing higher returns while also introducing hidden risks. Their operation relies not only on arbitrage paths but also on external custody, investment returns, and strategy execution.

2. The risk transmission of stablecoins is much faster than we imagine

The collapse of xUSD is a typical example of the "transmission effect": when one protocol encounters problems, another using its stablecoin as collateral, and a third with a similar mechanism design, all get dragged down.

Especially in the DeFi ecosystem, stablecoins serve as collateral assets, counterparties, and liquidation tools. Once the "peg" loosens, the entire chain, the whole DEX system, or even the entire strategy ecosystem can be affected.

3. Weak regulation: Institutional gaps are still being addressed

Currently, Europe and the U.S. have successively introduced various regulatory proposals: MiCA explicitly denies the legal status of algorithmic stablecoins, and the U.S. 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 it difficult for a single country to fully regulate them.
• The complexity of models and the high interconnection of on-chain and real-world assets mean that regulators have yet to reach a conclusion on their financial and liquidation attributes.
• Information disclosure has not yet been fully standardized; although on-chain transparency is high, the responsibilities of issuers, custodians, and others remain relatively vague.

Conclusion: Crises Bring Opportunities for Industry Reconstruction

The decoupling crisis of stablecoins not only reminds us that mechanisms carry risks but also forces the entire industry towards a healthier evolutionary path.

On one hand, the technical side is actively addressing past vulnerabilities. For example, Ethena is adjusting collateral rates and strengthening monitoring, attempting to hedge against volatility risks through active management.

On the other hand, the industry's transparency is continuously improving. On-chain audits and regulatory requirements are gradually becoming the foundation for the next generation of stablecoins, which is beneficial for building trust.

More importantly, user awareness is also upgrading. More and more users are beginning to pay attention to the underlying details of the mechanisms, collateral structures, and risk exposures behind stablecoins.

The focus of the stablecoin industry is shifting from "how to grow quickly" to "how to operate steadily."

After all, only by truly enhancing risk resistance can we create financial tools that can support the next cycle.