What Happened in Past Major Stablecoin Collapses?
From Terra's total collapse to USDC's brief 2023 wobble — here's what actually happened in past stablecoin depegs, and how each one resolved.
Looking at how past stablecoin depegs actually unfolded — what triggered them, how they progressed, and how they resolved — provides more concrete context than discussing the risk abstractly.
TerraUSD (UST): The Largest Algorithmic Collapse
In May 2022, TerraUSD, an algorithmic stablecoin maintained through a mechanism involving its related token LUNA, began losing its peg after large, coordinated withdrawals triggered selling pressure the mechanism couldn't absorb. As UST fell, the protocol minted increasing amounts of LUNA to try to restore the peg, which crashed LUNA's price further, which made the redemption mechanism progressively less effective — a feedback loop that ended with UST near zero and LUNA down more than 99% from its prior high, erasing tens of billions of dollars in value within days.
Why the Terra Collapse Had Effects Beyond Its Own Ecosystem
The collapse triggered forced liquidations and losses at several major crypto lending platforms and funds that had significant exposure to Terra's ecosystem, contributing to a broader wave of crypto industry failures in the months that followed — illustrating how a single stablecoin's failure can cascade into effects well beyond its own direct holders.
USDC's Brief Depeg During the Silicon Valley Bank Failure
In March 2023, USDC — a reserve-backed stablecoin — briefly traded around $0.87 after it became known that a portion of its cash reserves were held at Silicon Valley Bank, which had just been taken over by regulators. Unlike Terra's collapse, USDC's peg recovered within days once affected deposits were confirmed to be made whole through regulatory action.
Why These Two Cases Illustrate the Core Difference in Outcomes
The distinction between algorithmic and reserve-backed models shows clearly in how each event actually resolved — USDC's depeg was triggered by a real concern about specific reserves, but real reserves still existed and were ultimately confirmed intact, allowing recovery. Terra's collapse involved no equivalent underlying reserve to fall back on once confidence broke down.
Earlier and Smaller Depeg Events Worth Knowing About
Beyond these two widely covered cases, several other stablecoins have experienced brief or partial depegs over the years, often during periods of broader market stress or specific concerns about a particular issuer — most resolved relatively quickly, though the pattern of temporary depegs occurring during stressed conditions has repeated across multiple, separate stablecoins over time.
Why Studying Past Events Helps Calibrate Expectations
Understanding how previous depegs actually unfolded — what triggered them, how quickly they progressed, and what determined whether recovery happened — provides a more grounded basis for assessing risk than treating "stablecoin risk" as a purely theoretical concern.
What This Means for Evaluating Current Stablecoins
Checking whether any specific stablecoin you're considering has a history of even brief depegging events, and understanding what triggered them and how they resolved, adds useful context beyond just checking its current reserve or mechanism disclosures alone.
Check a stablecoin's historical stability and any past depeg events — past behavior under stress provides real context that current disclosures alone don't fully capture.