Stablecoin Depegs: Lessons From Terra, USDC's SVB Scare and USDe

A stablecoin has one job, and when it fails at it the result is not a bad day in the markets. It is a bank run conducted at internet speed, with every holder watching the price on their phone. There have been three defining failures in the past five years, each with a different cause. Read together, they explain almost every rule now written into stablecoin law.

May 2022: TerraUSD, the run with no reserves

TerraUSD, or UST, was an "algorithmic" stablecoin. It had no pile of dollars behind it. Instead, users could always swap one UST for a dollar's worth of a sister token, Luna, and arbitrage was supposed to keep the price at $1. Demand was fuelled by Anchor, a lending protocol on Terra that offered about 20% a year on UST deposits.

The flaw was circular. Luna's value depended on confidence in UST, and UST's peg depended on Luna having value. When large withdrawals began in May 2022, holders swapped UST for Luna and sold it, Luna's price collapsed, and each swap printed more Luna into a falling market. Within days both tokens were close to worthless and about $40 billion of value had vanished. The founder, Do Kwon, pleaded guilty to fraud charges and was sentenced to 15 years in prison in December 2025, according to Decrypt.

The damage spread. Terra's collapse set off a chain of failures among crypto lenders that ended with FTX's bankruptcy months later. Total stablecoin supply fell about 16% in 2022.

March 2023: USDC and the bank that failed on a Friday

USDC's scare was the opposite problem: real reserves, held in the wrong place. On Friday 10 March 2023, California regulators shut Silicon Valley Bank. That evening Circle disclosed that $3.3 billion of USDC's roughly $40 billion of reserves, close to 8%, was sitting there. Banks were closed for the weekend, so nobody could redeem. On Saturday USDC fell below 87 cents, its lowest ever, as CNBC reported.

It recovered once US authorities stepped in with emergency measures, including a $25 billion Federal Reserve funding programme. By Monday 13 March USDC was back near $0.995 and Circle was moving its remaining cash to BNY Mellon. The coin that depended on USDC suffered too: DAI, which held USDC in its collateral, briefly lost its peg as well.

The lesson was subtle. USDC was solvent the whole time. It was illiquid for 48 hours because its cash was a bank deposit above insured limits at a single lender, and markets do not wait for Monday.

Terra had no reserves. USDC had reserves it could not reach. Both failed the same test: can every holder get a dollar back, now?

October 2025: USDe and the venue problem

The newest episode is a reminder that design and market structure both matter. On 10 October 2025 a tariff shock triggered more than $19 billion of forced liquidations across crypto markets, according to Coinglass data cited by CoinGecko. Ethena's USDe, a synthetic dollar backed by crypto collateral and offsetting short futures positions, fell to $0.65 on Binance while staying near a dollar on most other venues. The exchange's pricing of USDe for collateral purposes and thin liquidity amplified the move; Binance and its critics still dispute how much the depeg caused rather than reflected the crash.

USDe did not collapse. But confidence took a hit: its supply fell from about $14.7 billion before the crash to about $6.3 billion two months later.

The scorecard

How the new rules answer each failure

Read today's laws with these three weekends in mind and the logic becomes obvious.

• No reserves (Terra). The GENIUS Act requires one-for-one backing in cash, short-term Treasuries and similar liquid assets, which rules out algorithmic designs for licensed payment stablecoins. Europe's MiCA and Hong Kong's ordinance do the same.
• Reserves you cannot reach (USDC). Rules now demand segregated reserves, monthly public disclosure and fast redemption. Hong Kong requires redemption requests to be met within one business day. Singapore's draft legislation adds quarterly stress tests and is considering minimum shares held as cash or bank deposits.
• Who gets paid first. The GENIUS Act gives holders first claim on reserves if an issuer goes bust, according to Norton Rose Fulbright's analysis. Before, holders could have ranked alongside other creditors.
• Yield as bait (Terra and USDe). The ban on issuers paying interest removes the 20%-yield lure that drew money into Anchor, and keeps payment tokens separate from trading strategies.

Details by country are in our GENIUS and MiCA guide and our Asia and Gulf regulation guide.

The pattern behind all three

Each run followed the same script. A piece of bad news arrived, holders with the fastest access sold first on exchanges, the market price fell below a dollar, and the fall itself became the news that triggered more selling. In every case the speed came from the same feature that makes stablecoins useful: they trade around the clock, and anyone can leave without asking permission. Rules cannot remove that feature. They can only make sure that, when the run comes, the dollars are really there.

What still worries us

Rules reduce risk; they do not remove it. Three gaps remain. Reserve mixes still differ: S&P Global cut its rating of USDT's peg stability to "weak" in November 2025, citing bitcoin and gold in its reserves and limited disclosure, which Tether disputes. Weekend liquidity is still a real constraint, because Treasury markets and banks keep office hours while stablecoins do not. And stacked products, such as yield tokens built on other stablecoins, can import a wobble from one layer to the next. Our guide to yield-bearing stablecoins covers that last point.

For ordinary users the practical takeaway is simple. Prefer coins issued under a clear licence, with frequent reserve reports and a stated redemption time. And remember that a peg is a promise, which is only as good as the assets and the legal claim behind it.

About this researchMuffinPay InsightsIndependent analysis of stablecoins, CBDCs, cross-border payments and digital public infrastructure. Every figure is linked to its source. Read our editorial standards →