Depeg
In one sentence
A depeg is when a pegged asset such as a stablecoin or liquid staking token trades meaningfully off its reference price, often because of redemption stress, protocol risk, or market panic.
What it actually means
Many on-chain assets are designed to track another value. USDC, USDT, and DAI target $1. Liquid staking tokens like stETH or rETH track the value of staked ETH. Wrapped assets like wBTC track BTC. The peg is maintained by arbitrage, redemption mechanisms, or collateral backing.
When the secondary market price deviates meaningfully from the peg — even temporarily — the asset is said to depeg. Small deviations (a few basis points) happen all the time. A depeg event implies movement large enough to affect collateral, liquidity, and trust.
How it works
Depegs are usually driven by one of three causes: doubt about the backing (reserve solvency, custodian risk), redemption stress (everyone trying to exit at once), or oracle and market liquidity issues. Once a peg starts to break, on-chain liquidations can amplify the move because lending oracles update and positions backed by the depegged asset become undercollateralized.
Why it matters to you
If you use a stablecoin as collateral or as a borrowed asset, a depeg changes your position math in seconds. If you use an LST as collateral, a depeg of stETH against ETH can liquidate leveraged staking positions even though "nothing happened to ETH itself."
- Collateral depeg can push health factor below 1 instantly.
- Borrowed-asset depeg can reduce the effective debt (briefly), but usually rebounds.
- Liquidity dries up during depegs — exits get expensive.
- LP positions on stable-stable or LST pairs lose value through impermanent loss.
Real examples
USDC dropped to about $0.87 in March 2023 after the Silicon Valley Bank collapse exposed $3.3B of Circle reserves; it returned to $1 within three days. stETH traded as low as 0.94 ETH in June 2022 during the Celsius/3AC unwind, before redemption-driven arbitrage closed the gap post-Shapella upgrade.
In both cases, leveraged positions using these assets as collateral were liquidated even though the assets eventually recovered.
Soft depeg vs hard depeg
Not every deviation is a real problem. A "soft depeg" of 10-30 basis points typically reflects redemption friction or temporary inventory imbalance on AMMs. A "hard depeg" of 100+ basis points usually implies fundamental doubt and tends to cascade. The duration matters as much as the depth: a one-block spike on a thin pool is noise, while a sustained 50 bps gap on a deep oracle feed is signal. This is why monitoring needs both threshold and duration parameters.
The oracle layer
Lending protocols do not always use the live market price. Aave V3 uses Chainlink feeds with a heartbeat and deviation threshold, sometimes augmented by stablecoin-specific price oracles that cap at $1 on the upside. This means a stablecoin trading at $1.02 on the open market might be valued at $1.00 inside Aave — and conversely, a fast depeg downward will hit positions only once the oracle updates. Understanding the oracle behavior of your collateral is part of understanding depeg risk.
How Otomato monitors it
Otomato tracks the price of every pegged asset in your portfolio (stablecoins, LSTs, wrapped assets) against its reference. Alerts trigger when the deviation crosses a threshold and sustains for a configurable duration, so you are not woken up for one-block oracle wiggles but you are warned the moment something real starts breaking.
Related terms
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