Stablecoins and de-peg risk

This lesson explains how the peg of a stablecoin works, where a de-peg comes from, and how to check the backing of the issuance, the redemption terms and the issuer’s permissions before you entrust funds to that coin. It is for the reader who moves capital between exchanges through stablecoins, or holds part of a portfolio in them, and wants concrete checks to run before entering.

What a peg is, and what a guarantee is not

A peg is an issuance target: the value of one unit is meant to correspond to one unit of an underlying currency, most often the dollar. It is delivered by a reserve of assets, by over-collateralisation in crypto, or by a mechanism that regulates supply. The word “stable” describes that mechanism and the issuer’s intention, not an obligation someone would have to honour towards you in every market condition. So in the documentation you look not for the adjective “stable” but for facts: what goes into the reserve, who attests to it, and on what terms you redeem units.

The practical consequence is simple. A stablecoin is an operating tool — it moves value and keeps liquidity on an exchange. It is not a bank account or a deposit, and you assess its “stability” from documents you reach yourself, not from the conviction that a large coin cannot break.

Types of stablecoins and what they mean for risk

The names in the examples column illustrate a category, not a quality assessment or a recommendation. The composition of the reserve, the issuance model and the redemption rules change over time, so you check the current state only in the issuer’s documentation and in supervisory announcements. This lesson gives an order of checks, not current data.

What a de-peg is and what causes it

A de-peg is a situation in which the market price of a unit moves away from the underlying currency. There is no single threshold at which a de-peg “begins” — whether a deviation matters is decided by the price at which you can actually exit the position. Typical mechanisms:

• A mass withdrawal of the reserve (a run) — too many units reach the market faster than it can absorb them at face value.
• A loss of trust in the reserve or in the attestations — price reflects expectations, so a decline can run ahead of any actual shortfall of assets.
• An algorithmic mechanism in a spiral — an attempt to defend the peg increases supply and thereby deepens the decline; in historical projects that path proved terminal.
• Stress across an entire asset class — in a panic, correlations rise, which the lesson on portfolio risk describes.

The effect is sometimes deep and long-lasting, so do not assume an exit at face value will be available exactly when you need it. That asymmetry — a calm entry and a nervous exit — is why you calculate a stress scenario below instead of only watching the current quote.

How to check the backing of the issuance before entering

The order below is fixed. You do it before funding the account, not after the first liquidity problems.

1. Establish the issuer and the network. The same symbol exists on several chains and in several contracts. Record which exact contract and which issuer stand behind the units you are buying.
2. Open the issuer’s documentation. Look there for the basis of the issuance, the reporting frequency and the entity that attests to the state of the reserve.
3. Check the redemption terms. What matters is the redemption rate, the fees, the minimum amount, the settlement time and who may submit a request.
4. Check who can freeze the funds. The terms of service and the contract code answer whether functions exist to freeze an address or maintain an allow-list, and who controls them.
5. Measure exit liquidity at your own level. Not global turnover, only the spread and depth inside the window in which you actually trade. The lesson on security and scams helps here.
6. Calculate the stress scenario in R. The formula and an example are in the next section.
7. Record the result with a date. Documentation and reports change over time, so an entry without a date loses its value after a few months.

In the European Union, the terms on which stablecoins are issued and offered are governed by MiCA. That is a general framework, not a confirmation that a particular entity meets the requirements — check the status in supervisory announcements and in the material on the Polish supervisor KNF.

How much risk a “stable” position carries — the calculation in R

Two numbers are enough to stop treating a stablecoin as a position without risk: the cost of a normal exit and the cost of an exit under stress.

exit_cost_in_R   = (exposure × (spread_% + slippage_%)) / 1R
stress_loss_in_R = (exposure × deviation_%) / 1R

An example with illustrative figures: exposure of $5,000 (an illustrative figure), spread of 0.1% and slippage of 0.3% (illustrative figures), with 1R equal to $100 (an illustrative figure). The exit cost is (5,000 × 0.004) / 100 = 0.2R. The same calculation at a 5% deviation (an illustrative figure) gives (5,000 × 0.05) / 100 = 2.5R. A position considered safe can therefore swallow more of the risk budget than two ordinary stop loss orders — with no price move at all in the instruments you trade.

The conclusion is not “do not use stablecoins”. It is: set an exposure limit and write it into the plan together with the 1–2% rule, just like the limit on a single position.

Who can freeze the funds and how to check it

In centrally issued stablecoins the contract may contain administrative functions: freezing an address, pausing transfers, changing an allow-list. This is not a hidden property — the provisions sit in the terms of service and the contract code, but you have to look for them yourself. Distinguish two levels:

• The contract level. If a freeze function exists, the entity named in the documentation as the administrator decides.
• The exchange level. When units sit in an exchange account, the exchange disposes of them and you hold a claim against it. Network access does not then mean access to the address.

That is why, with a larger amount, you record separately who controls the units and what you do when access is suspended. Custody of funds is a separate decision, not a side effect of choosing a coin.

When a stablecoin says “do not trade”

1. You cannot point to an issuer document describing the basis of the issuance. A missing source is a missing control, not “it is simply a large project”.
2. You do not know the redemption terms. If you do not know at what rate, with what fee and in what time you recover the underlying currency, you do not know the cost of exit either.
3. The spread and slippage at your level exceed the cost limit you recorded. You write the limit down in advance; exceeding it means no entry, not “a worse rate”.
4. The stress loss in R exceeds your exposure limit. The number from the formula is absolute, even when the scenario seems unlikely.

Pre-flight checklist

Fill it in and keep it — the date column matters as much as the others.

Common mistakes

• Treating the absence of a de-peg in recent months as proof of safety. A price holds its peg until the moment it stops holding it — the absence of an event is not a measurement of resilience.
• Replacing a bank account with a stablecoin “because it is more convenient”. The convenience of a transfer is no argument for holding capital in a coin you do not intend to use.
• Checking only the price, not the redemption terms. A quote of 1.00 on an exchange says nothing about whether and when you will redeem the units with the issuer.
• Ignoring the exchange level. Who controls the units in an exchange account changes how you act in an emergency.
• Recording conclusions without a date. Reserve documentation is updated, so an old entry describes a state that no longer exists.

A measurable exercise

Pick two stablecoins you are considering and go through the seven steps from the section on checking the issuance for each. Complete the checklist, then calculate both formulas at your planned exposure, your exit cost and your 1R. Record the result in R and the date. The conclusion you are aiming for is one sentence: at what maximum exposure the stress loss stays inside the limit from your plan. A related topic, liquidity on the derivatives market, is described in the lesson spot vs perpetual, and the technical context of contracts in the material on on-chain data.

Common questions

Is USDT safe?

This lesson cannot confirm that a particular coin is safe, and it does not replace the documentation. The assessment rests on what the issuer publishes about the basis of the issuance, who attests to it and what the redemption terms are — three things you verify at the source for every larger exposure.

Can I hold all my capital in a stablecoin?

You can, but that is a decision about reserve risk, redemption risk and address-freeze risk. Capital that is simply meant to be available in a currency belongs in a bank account. A stablecoin is a tool for transfers and for keeping liquidity on an exchange.

What is the spiral in an algorithmic stablecoin?

Defending the peg requires an action that increases supply or weakens trust, which deepens the price decline. The mechanism then drives itself, which is why in historical projects that path ended in a lost peg, not a temporary deviation.

Why calculate the stress loss in R if de-pegs are rare?

Precisely because it is rare and deep. A rare event of large scale can, in one move, exceed a budget that normally covers many transactions. Measuring in R answers whether one such situation fits inside the limit or breaches it — without that number you have nothing to compare with your plan.