The word “stable” is in the name, but “stable” doesn’t mean it never drifts from $1. Even USDC, a tightly regulated mainstream stablecoin, briefly fell to $0.88 in history. The difference isn’t “whether it depegs” but “whether it comes back.” And your decisions in those hours or days often determine how large the loss is.
On March 10, 2023, Silicon Valley Bank was seized by regulators and Circle disclosed that roughly $3.3 billion of USDC reserves were held at SVB and couldn’t be immediately accessed. USDC fell to $0.88 within hours. Panicking holders sold frantically; smart arbitrageurs bought at $0.88 and waited for Circle’s redemption window to reopen, pocketing $0.12 per coin. After the Fed and FDIC announced full protection of SVB deposits over the weekend, USDC fully recovered to $1 within three business days. The cause was temporary liquidity blockage, not a real reserve shortfall — the result was complete recovery.
At the same time, DAI fell to around $0.90 — not because DAI itself was broken, but because its PSM had accumulated large USDC reserves and the USDC crisis passed through directly. Two lessons: first, dependencies between stablecoins are real contagion channels; second, DAI still had overcollateralized crypto assets underneath, and as USDC recovered, DAI fully restabilized within two days.
UST’s depeg was entirely different. It wasn’t because reserves were frozen at a bank — it was because there were no reserves at all. The algorithmic mechanism triggered a death spiral under large-scale panic, falling from $1 to $0.006 in days and ultimately going to zero. Tens of billions in market cap vanished, with no recovery whatsoever.
Together, these three cases give us an important decision framework. In a depeg, the most dangerous move is “panic-sell the moment you see it drop.” People who cut their USDC at $0.88 voluntarily redeemed a coin worth $1 three days later at $0.88 — the loss was entirely self-inflicted. The right first step isn’t to sell immediately; it’s to ask: what caused this depeg? Are the reserves temporarily frozen (solvable, like SVB) or fundamentally absent (structural, like UST)? If it’s temporary liquidity with real external assets underneath, patience is usually the best move. If it’s structural failure (algorithmic collapse, fraudulent reserves), that’s the signal to exit immediately and not wait.
Whenever a stablecoin depeg occurs, follow three steps. Step one, turn off emotions: the price drop itself isn’t the decision basis — the cause is. Step two, check the cause: what does the official statement say? Is it a liquidity issue or a reserve problem? Is there external collateral holding it up? Step three, consider your exposure: if this stablecoin is only a small part of your assets, waiting may be reasonable; if all your liquidity is concentrated there, your risk tolerance is very different. Diversifying normally means you don’t have to make the hardest decision at the worst moment. This article is educational only and does not constitute investment advice.