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Onchain Economics
DeFi Primitives

Depegging

When a pegged asset loses its target price, trading significantly above or below its intended value.

In-Depth Explanation

Depegs can be temporary (UST briefly during Luna crash before total collapse) or reflect fundamental problems. Causes include insufficient collateral, liquidity crises, smart contract exploits, or loss of market confidence. Even robust stablecoins like USDC have briefly depegged during market stress. Depeg risk is a key consideration when choosing stablecoins.

Related Terms

Peg

A target price that an asset aims to maintain, typically $1 for stablecoins or 1:1 for wrapped/synthetic assets.

Stablecoin

A cryptocurrency designed to maintain a stable value relative to a reference asset, typically the US dollar.

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Automated Market Maker

AMM

A smart contract that provides liquidity and enables trading using a mathematical formula instead of an order book.

Liquidity Pool

LP

A smart contract holding paired assets that enables trading, lending, or other DeFi activities.

Collateralized Debt Position

CDP

A loan where users deposit collateral to mint or borrow assets, with liquidation risk if collateral value falls.

Lending Protocol

A DeFi application that matches lenders with borrowers through smart contracts, enabling permissionless borrowing and lending.

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