Research by Moody’s Analytics shows that despite their name, so-called stablecoins have depegged at least 609 separate times in 2023. A similar number of depegging events occurred in 2022 and for the past 22 months combined, the 25 largest stablecoins have depegged at least 1,316 times.
Indeed, Protos has detailed at least 16 incidents of Tether (USDT) trading for drastically different prices than $1. The world’s largest stablecoin has traded for as low as $0.001, as high as $1,000, and various prices in between, for the past six years.
The report by Moody’s expands its own, similar analysis to take in 25 stablecoins. From this set, its analysts found over 600 separate depegging events year-to-date and over 700 last year.
Moody’s Analytics Digital Asset Monitor tracks all major stablecoins, including PayPal Coin (PYUSD), USDT, and USDC. Its Digital Asset Monitor uses AI, off-blockchain data, and various exchange inputs to track volatility and risk in so-called decentralized finance — yet another misnomer.
Mostly convenient definitions for ‘depeg’
Moody’s Analytics analysts define a depeg as a price deviation of more than 3%. However, there’s no universally accepted definition of a stablecoin ‘depegging event.’ As of August 2021, for example, the President of stablecoin Frax defined a depeg as trading outside a “$1 range” for “more than six hours.” Other stablecoin leaders use different definitions — mostly, to reduce the number of events that qualify as depegs.
Strictly speaking, the word ‘stablecoin’ is something of a misnomer anyway. As evidenced by Protos’ stablecoin reporting and Moody’s report of over 1,300 stablecoin depegs since 2022, these assets are not technically stable.
Moreover, stablecoins are not coins per se; coins are native assets of a blockchain used for gas and validation processes. Instead, stablecoins are ‘tokens,’ i.e. non-native assets issued via smart contracts that rely on coins for on-chain processes.
Nevertheless, the term has remained prevalent for years, and stablecoin remains the de facto descriptor for dozens of crypto tokens.
Depegs happen frequently and are worrying
Notable depegs in 2022 included May’s collapse of Terra (UST) from an $18.7 billion to near-$0 market capitalization. Terra’s collapse triggered a domino effect that predated the bankruptcies of Voyager, Celsius Network, and Genesis.
USDT briefly lost its own $1 peg around the same time as the Terra meltdown and again in November 2022, the same month FTX and Alameda Research filed for bankruptcy. USDT’s market cap is currently above $85 billion, making it the largest stablecoin by market cap, the most traded asset on crypto exchanges, and the most popular asset for moving money between exchanges.
Unfortunately, it also has a questionable history that includes a changing story about the assets backing it and frequent run-ins with regulators.
In 2023, PayPal saw a lackluster launch of PayPal Coin partly due to language in its terms of service stating that it reserves the right to freeze or seize PayPal Coin holdings. PayPal Coin saw one super weird price swing soon after its launch, trading as high as $236,493.17 on August 20, 2023, and as low as $0.09621 on August 21, 2023 — showing that it is anything but immune to a depeg despite the well-established business backing it.
A large stablecoin holder selling it to buy any other digital asset might cause its price to move dramatically. A stablecoin’s attractiveness can also reflect confidence in the assets backing it. Non-yield bearing USD stablecoins might not look attractive when government-guaranteed interest rates are rising, for example.
Stablecoins breaking the buck
Most large stablecoins promise to back each token with $1 worth of assets. These stablecoins can depeg whenever doubt about the quality and liquidity of these assets arises. Moreover, depegs can occur whenever a market maker on any exchange loses sufficient capital inventory to buy or sell sufficient assets to keep the stablecoin at $1 relative to USD, BTC, ETH, or various other trading pairs.
In short, even stodgy Wall Street analyst firms are taking notice of the peculiar stablecoin market. Moody’s is now tracking the 25 biggest stablecoins’ promises to retain their peg.
Moody’s research shows that the stablecoin industry is struggling nearly as much in 2023 as it struggled in 2022, depegging hundreds of times this year. So far, and despite their struggles, most of the major stablecoins have managed to regain their promised pegs. Without a doubt, however, its analysts will continue to report on scary moments for stablecoin peg watchers.