Key takeaways
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Stablecoins are nearing a $300-billion market cap, but adoption remains limited due to risks around depegging, collateral and trust.
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The depegging of stablecoins such as NuBits (2018), TerraUSD (2022) and USDC (2023) has revealed vulnerabilities across both algorithmic and fiat-backed models.
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The collapse of TerraUSD wiped out roughly $50 billion in value and exposed the systemic fragility of algorithmic designs.
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In 2025, Yala’s Bitcoin-backed YU lost its peg following an exploit, underscoring issues of thin liquidity and cross-chain security.
Stablecoins just crossed a major milestone, with total market capitalization now above $300 billion. As of Oct. 6, 2025, CoinMarketCap reports roughly $312 billion.
Despite rapid growth, stablecoins still haven’t achieved mainstream adoption. One major reason is the recurring instances of these tokens losing their peg to the assets that back them — whether fiat currencies like the US dollar, commodities like gold or even other cryptocurrencies.
This article discusses real examples of stablecoin depegging, why it happens, the risks involved and what issuers can do to prevent it.
Historical overview of stablecoin depeggings
Stablecoin depeggings have repeatedly exposed flaws in how these assets are designed. Early examples, such as the 2018 collapse of NuBits, showed how fragile unbacked algorithmic models can be. Even Tether’s USDt (USDT) briefly fell below $1 in 2018 and again in 2022, driven by market panic and liquidity shortages — events that fueled concerns about its reserves.
One of the biggest collapses came in May 2022, when TerraUSD — an algorithmic stablecoin — unraveled after a wave of redemptions set off a bank-run-like spiral. Its sister token, LUNA, went into hyperinflation, wiping out about $50 billion in market value and sending shockwaves through the broader crypto industry.
Fiat-backed stablecoins have also depegged. USDT briefly dropped to $0.80 in 2018 amid solvency fears, and USDC (USDC) lost its peg in 2023 after Silicon Valley Bank collapsed — showing how even fiat reserves face traditional banking risks. Dai (DAI) and Frax (FRAX) — both partially backed by USDC — also dipped during the same period, deepening concerns about reserve interlinkages across the market.
Together, these episodes highlight liquidity shortfalls, eroding trust, and systemic risks that continue to challenge stablecoins — even as the market nears the $300-billion mark.
Did you know? Most depegs occur when liquidity pools run thin. Large sell-offs drain available liquidity, making recovery harder. Terra’s Curve pool imbalance in 2022 and Yala’s small Ether (ETH) pool in 2025 showed how limited depth can magnify market shocks.
Case study: The TerraUSD collapse
The May 2022 collapse of TerraUSD (UST) was a major blow to the crypto market, triggering a chain reaction across the industry and exposing the risks of algorithmic stablecoins. Unlike traditional fiat-backed versions, UST tried to maintain its $1 peg through an arbitrage mechanism with its sister token, LUNA.
Adoption of TerraUSD was fueled by the Anchor protocol, which offered unsustainable, subsidized yields of nearly 20% to UST depositors. As doubts about this model grew and crypto markets weakened, confidence collapsed, triggering a bank-run-like spiral. Large, sophisticated investors exited first, accelerating UST’s depeg. The first clear signs appeared on May 7, 2022, when two large wallets withdrew roughly 375 million UST from Anchor.
This triggered a massive wave of swaps from UST to LUNA. In just three days, LUNA’s supply jumped from around 1 billion to nearly 6 trillion, while its price crashed from about $80 to almost zero, completely breaking UST’s peg. The crash exposed major flaws in decentralized finance (DeFi), from unrealistic yield models to how smaller investors, often without timely information, ended up taking the biggest hit.
Did you know? Stablecoin depegs tend to spiral when panic spreads online. During UST’s collapse, social media buzz and forum discussions likely fueled a rush of withdrawals. The speed at which confidence vanished showed how quickly fear can spread in crypto, much faster than in traditional finance.
Case study: Yala’s YU stablecoin
In September 2025, Yala’s Bitcoin-backed stablecoin, YU, suffered a depegging event following an attempted attack. According to blockchain company Lookonchain, an attacker exploited the Yala protocol by minting 120 million YU tokens on the Polygon network. The attacker then bridged and sold 7.71 million YU tokens for 7.7 million USDC across the Ethereum and Solana networks.
By Sept. 14, 2025, the attacker had converted the USDC into 1,501 ETH and distributed the funds among multiple wallets. According to Lookonchain, the attacker still held 22.29 million YU tokens on Ethereum and Solana, with an additional 90 million YU remaining on the Polygon network, which had not been bridged.
The Yala team stated that all…
cointelegraph.com