Definition
Depeg refers to a situation where an asset that is designed to track a reference value, known as a peg, trades meaningfully above or below that target price. In decentralized finance, the term is most commonly used for a stablecoin whose market price diverges from its intended value, such as one unit equaling one U.S. dollar. A depeg can be temporary and minor or severe and prolonged, but in all cases it indicates that the mechanism meant to maintain the peg is not fully holding in current market conditions.
Stablecoins like DAI, FRAX, and TUSD are designed to maintain a peg through collateral, algorithms, or a combination of both, and a depeg signals stress or imbalance in those designs. The concept is central to assessing the reliability of any stablecoin, because persistent or repeated depegs can undermine confidence in the asset’s ability to function as a stable store of value or unit of account.
Context and Usage
In practice, depeg is discussed as a market and risk concept rather than a specific on-chain action. Observers monitor how closely a stablecoin trades to its peg across exchanges and on-chain markets, and they describe periods of notable divergence as a depeg event. The severity of a depeg is often characterized by the percentage difference from the peg and the duration of the deviation.
Within DeFi, the term is used when evaluating the stability profile of a stablecoin, the robustness of its collateral model, and the potential systemic impact on protocols that depend on that stablecoin. References to depeg events for assets such as DAI, FRAX, or TUSD highlight moments when market confidence, collateral conditions, or liquidity dynamics caused the asset to stray from its intended peg, raising questions about its risk characteristics.