TLDR
- NYDIG says stablecoins trade near $1 but are not guaranteed to stay fixed.
- USDe dropped to $0.65 on Binance during the $500B crypto market crash.
- Greg Cipolaro says stablecoin prices rely on arbitrage and market demand.
- Aave liquidated $180M, or 0.25% of TVL, showing resilience amid turmoil.
The recent $500 billion crypto market sell-off exposed cracks in the stability of so-called “stablecoins,” according to NYDIG. The firm’s Global Head of Research, Greg Cipolaro, said the belief that stablecoins like USDC, USDT, and USDe are fixed at $1 is a misconception. He explained that their value fluctuates with market dynamics rather than being truly pegged to the U.S. dollar.
NYDIG Challenges the Concept of Stablecoin Pegs
NYDIG stated that the perception of stablecoins being “pegged” to the dollar is inaccurate. Cipolaro explained that these tokens operate like market-traded assets whose prices move around $1 due to trading activity and arbitrage.
“Stablecoins are not pegged to $1.00. Period,” Cipolaro wrote in a research note. “They are market-traded instruments whose prices fluctuate around $1.00 due to trading dynamics.” He added that the term “peg” gives users a false sense of security because it implies a fixed guarantee that does not exist in practice.
Cipolaro said the illusion of stability often comes from arbitrage opportunities. Traders buy stablecoins when their price drops below $1 and sell when it rises above. Issuers, meanwhile, create or redeem tokens to balance the market. However, during volatile conditions, this system can fail as trading activity becomes one-sided and liquidity dries up.
Market Sell-Off Tests Stablecoin Stability
The $500 billion market decline last week tested this fragile mechanism. Stablecoins such as USDT and USDC briefly traded above $1, while Ethena’s USDe fell sharply to as low as $0.65 on Binance before the exchange compensated affected users. The asset also faced price drops across other major trading platforms.
Cipolaro said the price movements revealed how stablecoins respond to panic. When large numbers of users attempt to redeem or offload tokens, the supply-demand balance shifts rapidly. “These are not fixed instruments,” he noted. “Their prices float based on how the market behaves in real time.”
The incident reinforced concerns about algorithmic and derivative-backed stablecoins like USDe, which rely on complex trading positions to maintain balance. When those mechanisms fail, price volatility can increase dramatically.
Arbitrage and Market Forces Drive Perceived Stability
NYDIG’s report explained that what appears to be price stability is actually a reflection of active arbitrage and liquidity management. Stablecoins only hold close to $1 as long as traders and issuers continue to correct price differences through redemptions and new token issuance.
During last week’s sell-off, market makers and traders struggled to maintain that balance. As a result, price fluctuations widened, showing how quickly the peg perception can break under stress. Cipolaro added that the episode demonstrates the importance of understanding how stablecoin mechanisms truly function.
He said users often assume stablecoins are backed by firm guarantees or collateral equal to their face value. In reality, their stability depends on trust, liquidity, and the ability of arbitrage systems to function under pressure.
Broader Market Resilience and Limited Losses
While stablecoins showed instability, lending markets performed relatively well during the crash. DeFi protocol Aave reported only $180 million in liquidations, equal to about 0.25% of its total value locked. NYDIG confirmed that it suffered no losses during the drawdown.
Cipolaro said the data underscores that not all sectors of the crypto ecosystem reacted the same way. Some platforms maintained operational resilience despite extreme volatility. However, he emphasized that users should reassess their understanding of what “stable” means in the context of digital assets.
The broader crypto market has started to recover slightly after the sharp sell-off, though trading volumes remain high. The discussion around stablecoin reliability is expected to continue as regulators and investors seek clearer definitions and stronger frameworks for these widely used assets.
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