A stablecoin depeg is the situation in which a stablecoin trades noticeably above or, more often, below the value it is designed to hold, such as one US dollar or one euro. The main entry on depegging (or depeg) covers the concept in full, including depegs of currencies and other pegged assets. Small deviations of a fraction of a cent are normal on exchanges; the term is used when the gap is large or lasts long enough to suggest that the mechanisms holding the peg are under strain.
Depegs of fiat-backed stablecoins usually follow doubts about the reserves, such as exposure to a failing bank, or disruption to redemption, when holders cannot easily swap tokens for cash. Crypto-collateralised coins can depeg when collateral prices fall sharply, and algorithmic stablecoins have suffered permanent collapses when confidence in their stabilising mechanism failed.
Pegs are usually restored through arbitrage: if a coin trades below par, traders buy it cheaply and redeem it with the issuer at full value. This only works if redemption is open and reserves are sound, which is why regulators focus on reserve quality, redemption rights and frequent disclosure.