Depegging is the phenomenon when a stablecoin loses its stability and no longer maintains a fixed value compared to a reference asset, usually something like the USD.
For example, the stablecoin Tether (USDT) is designed to always be worth 1 USD, but its value drops to 0.90 USD or increases to 1.10 USD, this is called depegging.
The concept of depegging is important in the cryptocurrency market because it breaks the stability that stablecoins promise to bring. is considered a safe haven for cryptocurrency investors, helping them protect the value of their assets from the strong volatility of the crypto market. When a stablecoin is depegged, this can lead to a loss of assets and cause panic in the market.
The depegging formula is often used to quantify the degree of depegging of a stablecoin. The formula for calculating depeg is as follows:
Depeg = (Reference price/Current price of stablecoin) × 100% − 100%
Current price of stablecoin: The current market price of the stablecoin you are evaluating.
Reference price: The value that the stablecoin is designed to maintain, usually $1 for stablecoins pegged to the US dollar.
If the current price of a stablecoin is $0.95 and the reference price is $1:
Depeg = (0.95/1.00) × 100% − 100% = 5%
In this example, the depeg is -5%, meaning that the stablecoin has lost 5% of its value from its reference value.
- Depeg = 0%: Stablecoin is maintaining a completely stable value compared to the reference price (1:1).
- Negative Depeg (-): Stablecoin is trading below the reference price, meaning it has lost its peg and its value is lower than its intended value.
- Positive Depeg (+): Stablecoin is trading above the reference price, this can happen in special situations but is usually undesirable as it shows an imbalance in the operating mechanism.
See details: What is depeg? Causes and consequences when stablecoins lose peg
Translations
Vietnamese: Depeg (mất peg) của stable coin là gì?