What causes a stablecoin to depeg, and what actually brings it back

A stablecoin depeg happens when its secondary-market price separates from its $1.00 reference and the arbitrage channel that would normally close the gap – buying the discount and redeeming it with the issuer at par – stops working. Whether the peg comes back depends entirely on whether that channel reopens: it did within days for USDC and DAI in 2023, within weeks for USDT in 2022, and never did for UST. The mechanism: arbitrage, and what happens when it jams Chainlink’s explainer describes three broad stablecoin designs – fiat-backed, crypto-backed, and algorithmic – and says that across all three, price stability depends on arbitrageurs constantly realigning the market price with the peg. In normal conditions this happens in minutes: Eco’s guide notes that USDT routinely drifts to $0.997 or $1.003 during volatile hours and snaps back, and Chainlink separately describes $0.998 or $1.002 as the kind of momentary imbalance that resolves on its own, in an article last updated April 15, 2026. A depeg, by contrast, is what Eco calls a sustained deviation that traders cannot arbitrage away because something structural has broken. The structural break is always the same shape: the primary-market exit (redemption with the issuer, or the on-chain equivalent) becomes slow, capped, expensive, or absent, while secondary-market selling continues. CryptDaily frames this as “part mechanics, part psychology” – the mechanics have to hand an arbitrageur a low-risk way to buy the discount, or the discount persists regardless of whether the underlying backing is sound. Fiat-backed coins: redemption is the release valve For a fiat-collateralized stablecoin, Chainlink explains that if the token trades below $1, an institutional holder can buy it at the discount and redeem it with the issuer for $1 of the underlying reserve, capturing the spread – and that buying pressure is what restores the price. This only works if redemption is actually open and fast. USDT’s May 2022 episode shows the mechanism working slowly rather than failing: Eco reports the token traded to roughly $0.95 on May 12, 2022 during the Terra/3AC contagion, that Tether processed more than $10B in redemptions over two weeks, and that the discount persisted while that queue cleared before recovering over roughly two weeks, per Eco’s event table. USDC’s episode in March 2023 shows a different failure point: not the redemption queue, but the reserves themselves. Circle disclosed that $3.3B of USDC reserves were held at Silicon Valley Bank, according to Eco, after the FDIC took the bank into receivership; Eco dates the failure itself to March 10-13, 2023, without specifying the exact day of the receivership action. USDC traded down to roughly $0.87 on Coinbase and Curve, per Eco; Chainlink separately reports the token dropped below $0.88 on secondary markets, in its article last updated April 15, 2026.