What is a stablecoin peg?

A peg is a promise with a mechanism attached, and only the mechanism matters once the price drifts. For most coins that means an issuer who mints and redeems at exactly $1.

For fiat-backed coins, arbitrage does the work. Take USDC at $0.998. An approved firm buys it on the market, redeems it with Circle for $1.000 and keeps the 0.2 cents, and that buying lifts the price. At $1.002 it runs the other way: mint at $1, sell higher. Crypto-backed coins rely on collateral ratios and liquidations instead, and synthetic dollars on their hedge and their own mint and redeem contracts.

So a peg is only as strong as the exit. If redemptions pause or have to wait for banks to open, the price can sit off peg for days. Thin pools matter too. One big sell can knock a coin with shallow DEX liquidity off $1 while its reserves are fine.

USDC in March 2023 is the clean case. Silicon Valley Bank failed on a Friday, and redemptions needed bank rails that stayed shut over the weekend, so the coin spent two days well under $1. On Monday, with deposits guaranteed and banks open, it was back near $1. About 8 percent of the reserves were stuck at SVB. Even writing all of that off left roughly $0.92 of backing per token, so the market was pricing in more than the SVB hole: fear about Circle's other banks, and no way to redeem until Monday.

Also called: peg, dollar peg.

The Stablecoin risk widget puts each coin's price on a gauge that spans 1 percent either side of $1. The row goes to Watch half a percent away from $1 and to High at 2 percent, and a dollar coin with no price at all also gets Watch, since a missing quote is a warning of its own. The widget lists dollar-pegged coins only. Euro and other pegs are left out.

• Stablecoin risk

• Depeg
• Stablecoin
• Stablecoin supply
• Yield-bearing stablecoin