Stablecoin depeg risk: when one dollar stops being one dollar

What a depeg is

A stablecoin is a token designed to hold a steady value, usually one US dollar. A depeg is when its market price drifts meaningfully away from that target and stays there long enough to matter. Small wobbles of a fraction of a cent are normal. A depeg is the moment holders stop believing the token can be swapped back for its full target value.

Stablecoins are often treated as the calm part of a DeFi portfolio: the parking spot between trades, the collateral for loans, the asset in stable pools. That is exactly why a depeg hurts. It hits the money you thought was not at risk.

How it happens

Every stablecoin keeps its peg through some kind of promise. Pegs break when that promise is doubted or fails. Our stablecoin types comparison covers the designs in more detail.

• Reserve doubts (fiat-backed). The issuer says each token is backed by cash and short-term assets. If people question whether the reserves exist, are liquid or are held somewhere safe, they rush to sell or redeem, and the market price drops before any answer arrives.
• Collateral crashes (crypto-backed). The token is backed by other crypto worth more than the stablecoins issued. If that collateral falls fast enough, liquidations may not keep up and the system can be left under-collateralized.
• Algorithmic reflexivity. Some designs hold the peg with a second token and a mint-and-burn mechanism rather than full reserves. When confidence falls, the mechanism creates more of the second token, its price drops, confidence falls further, and the loop feeds on itself. The TerraUSD (UST) algorithmic stablecoin lost its peg in May 2022.
• Redemption limits. Even a well-backed token may be redeemable at par only for approved customers, above a minimum size, during business hours or after a delay. Everyone else has to sell on the market, at whatever price buyers will pay that day.
• Plumbing failures. A bank holding reserves runs into trouble, a bridge carrying a wrapped version is attacked, or an issuer freezes tokens. Each can push a particular version of a stablecoin away from its target.

Keep the difference between design and market price in mind. A token can be fully backed and still trade below its target for a while if redemption is slow, restricted or paused. Backing tells you what should happen eventually; market price tells you what you can get today.

See the full infographic with notes.

A hypothetical example

Stable pools are a common place to feel a depeg, because the pool keeps trading while one coin slides.

These figures are invented for teaching. Real stable pools use different pricing curves and fees, so outcomes vary. Try your own inputs in the depeg simulator.

Warning signs

• The market price sits below target for hours or days rather than minutes.
• Stable pools become lopsided, holding far more of one stablecoin than the other.
• The issuer delays or changes reserve reports, or the reports become less detailed.
• Redemptions are paused, slowed or limited to fewer customers.
• The yield offered on the stablecoin jumps sharply, a sign that someone urgently needs deposits.
• For algorithmic designs, the supply of the companion token grows quickly.
• News about a bank, custodian or bridge that the stablecoin depends on.

How to reduce it

• Know the design. Fiat-backed, crypto-backed and algorithmic tokens fail in different ways. Read how the one you hold is supposed to keep its peg. The stablecoins guide is a good start.
• Know who can redeem. Find out whether you personally can redeem at par, or whether you would have to sell on the market.
• Know which version you hold. A bridged or wrapped stablecoin on another network carries bridge risk on top of issuer risk.
• Avoid concentration. Holding everything in one stablecoin, or in one stable pool, means a single failure reaches all of it.
• Decide your exit in advance. Choose the price at which you would sell or withdraw before stress arrives. Decisions made in the middle of a depeg are often the expensive ones.
• Keep emergency money elsewhere. Money you may need on short notice may belong in an insured deposit rather than a token.

The Canadian angle

The Stablecoin Act received Royal Assent on 2026-03-26 as part of Bill C-15. As of 2026-10-30 it is enacted but not in force: the consolidated text, current to 2026-09-30, is marked “Act not in force,” and it takes effect on a day fixed by order. Finance Canada’s framework page (modified 2026-03-31) describes 1:1 reserves of high-quality liquid assets, redemption at par, no interest or yield from issuers, and Bank of Canada supervision, and says the framework is expected to come into force in 2027. Proposed Stablecoin Regulations were published in the Canada Gazette, Part I, on 2026-10-24 for consultation.

Until the Act is in force, those protections are proposed, not current. Separately, the CSA said on 2024-09-26 that after December 31, 2024, crypto trading platforms may only offer stablecoins that meet the terms of their regulatory decisions, and warned that stablecoins do not carry the protections of regulated deposits. Even once the new regime applies, reserve and redemption rules reduce some risks; they do not stop a token’s market price from moving. For tax, CRA treats trading one crypto-asset for another as a disposition, so record the CAD value of every stablecoin swap.

Your checklist

• Identify the design: fiat-backed, crypto-backed or algorithmic.
• Check whether you can redeem at par yourself, and on what terms.
• Note which network and version of the stablecoin you hold.
• Set a sell or withdraw price before you need it.
• Keep money you need soon in an insured deposit, not a token.
• Record the CAD value of each stablecoin trade for your tax records.

Sources and dates

• Stablecoins — ethereum.orgreference
  No date shown on page · checked 2026-10-31. Fiat-backed, crypto-backed and algorithmic stablecoin designs.
• What's covered — Canada Deposit Insurance Corporationin force
  No date shown on page · checked 2026-10-30. Up to $100,000 per category per member institution; cryptocurrencies, including stablecoins, are not covered.
• Stablecoin Act (S.C. 2026, c. 3, s. 600) — Justice Laws Websiteproposed
  Page date 2026-09-30 · checked 2026-10-30. Enacted but marked 'Act not in force'; comes into force on a day fixed by order.
• LEGISinfo — Bill C-15, Budget 2025 Implementation Act, No. 1 — Parliament of Canadain force
  Page date 2026-03-26 · checked 2026-10-30. Royal Assent 2026-03-26; enacts the Stablecoin Act.
• Canada's Stablecoin Framework — Department of Finance Canadaproposed
  Page date 2026-03-31 · checked 2026-10-30. 1:1 high-quality liquid reserves, at-par redemption, no interest/yield, Bank of Canada supervision; expected in force in 2027.
• Stablecoins — regulatory oversight — Bank of Canadareference
  No date shown on page · checked 2026-10-30. The Bank administers the fiat-backed stablecoin framework and supervises issuers.
• Proposed Stablecoin Regulations — Canada Gazette, Part I, Vol. 160, No. 43 — Canada Gazetteproposed
  Page date 2026-10-24 · checked 2026-10-30. Proposed regulations under the Stablecoin Act, published for consultation.
• CSA update to crypto asset trading platforms about value-referenced crypto assets — Canadian Securities Administratorsin force
  Page date 2024-09-26 · checked 2026-10-30. After December 31, 2024, platforms may only offer stablecoins that meet their decision terms; stablecoins lack deposit protections.
• Reporting income from crypto-asset transactions — Canada Revenue Agencyin force
  Page date 2025-12-02 · checked 2026-10-30. Business income vs capital gains is case by case; lists business indicators; crypto-to-crypto trades are dispositions; half of a capital gain is taxable.