Stablecoin depeg risk calculator
EV = yield × probability of holding peg − expected loss in depeg event.
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High-yield stablecoins (USDe at 12%, algorithmic stables at 15%+, yield-bearing experimental stables) pay premium rates for a reason — depeg risk. This calculator runs expected-value math: is the yield high enough to compensate for the probability-weighted loss from a depeg?
Enter the stablecoin's APY, your estimated annual depeg probability, and your estimated loss severity in a depeg. The calculator outputs net EV — is this yield actually profitable risk-adjusted?
The math is straightforward; the inputs are where most holders get it wrong. Assigning a 1% depeg probability to an algorithmic stable because 'it hasn't happened yet' is recency bias. UST had not depegged until it did, then it depegged 99% in 72 hours. The correct baseline for experimental stables is the historical failure rate of all similar-mechanism stables — which is closer to 20-30% over a 3-year horizon.
Correlation risk compounds the expected-value problem. Stablecoins often depeg during the same market events that cause your other positions to drop. If you hold 30% of your portfolio in a high-yield stable and 70% in ETH, both will suffer in the same stress scenario — the stable depegs precisely when ETH is also down 40%. Your actual portfolio loss is worse than each position calculated independently. Size high-yield stable positions as if they are equity, not cash.
Holding $100,000 in a 12% APY stablecoin with 5% annual depeg probability and 40% severity
Gross yield: $12,000/year.
Expected loss from depeg: $100,000 × 5% × 40% = $2,000.
Net EV: $12,000 − $2,000 = $10,000 = 10% net expected yield.
Compare to USDC at 5% APY with 0.1% depeg prob × 5% severity = $5,000 − $5 ≈ $4,995 = 5% net.
Higher-risk stable wins in expected value, but variance is much worse.
Historical stablecoin depeg events
UST (May 2022): algorithmic stablecoin collapsed to $0.01 in 4 days, wiping $40B+ in value. Severity: ~99%. USDC (March 2023): depegged to $0.88 for 72 hours during SVB collapse; recovered fully. Severity: 0% (for holders who waited). DAI (March 2023): briefly depegged alongside USDC (heavily USDC-collateralized). Severity: ~0%. USDN (Waves Neutrino): slow depeg to $0.30 over months. FRAX, sUSD, various minor stables: occasional 1-5% depegs during market stress, usually recovered.
Mechanisms that reduce depeg risk
Over-collateralization is the oldest and most reliable defense. DAI requires 150%+ collateral per dollar issued — if BTC backing falls from $150 to $110, there is still $110 covering every $100 of DAI. Liquidation bots automatically sell collateral before it dips below 100%, maintaining the buffer. MakerDAO has run since 2017 without a systemic failure despite multiple 80%+ ETH price crashes. The mechanism works because collateral liquidation happens before the stable becomes undercollateralized.
Reserve-backed stables (USDC, USDT) defend peg through direct redemption. Holders can redeem $1 of USDC for $1 of USD from Circle directly. This arbitrage eliminates persistent depegs: if USDC trades at $0.95 on secondary markets, arbitrageurs buy cheap USDC and redeem at par for a 5.3% instant profit. This pressure collapses the discount rapidly. The USDC SVB depeg recovered from $0.88 to $1.00 in under 72 hours through exactly this mechanism once clarity arrived that reserves were intact.
Delta-neutral stables like USDe avoid collateral liquidation risk but substitute funding-rate risk. When BTC funding is highly positive, USDe's short perp position collects funding and supports the yield. When funding goes negative, the short perp loses money, compressing or eliminating the yield. If funding stays negative for extended periods, the protocol may face redemption pressure. USDe survived the 2024 negative-funding periods but its reserve fund was drawn down. A prolonged bear market with persistent negative funding is the primary tail risk.
How to build a diversified stablecoin position
Professional DeFi treasuries rarely put more than 25-30% in any single stablecoin. A defensible allocation for a $500,000 stablecoin position: 40% USDC (Coinbase Earn or T-bill-backed, highest safety), 30% USDT (slightly higher yield, regulatory risk trade-off), 20% sDAI or Aave USDC (DeFi yield, smart-contract risk), 10% USDe or similar high-yield (maximum 10% in any experimental mechanism). Total blended APY in 2024-2025 conditions: roughly 5.5-6.5% without meaningful concentration risk.
Rebalancing matters too. If USDC appreciates relative to USDe (USDe drops slightly in a stress event), moving capital from USDC to USDe after recovery captures the depeg discount plus ongoing yield premium. This requires discipline — buying a stablecoin that just lost its peg is psychologically difficult but mathematically sound when the mechanism is sound and the depeg is market-driven rather than structural.
Keep at least 20-30% of your stablecoin allocation in fully liquid, no-protocol-risk form (Coinbase or Kraken platform cash, or USDY in a direct custody account). When a depeg event happens and you want to buy the discount, you need funds that are not also locked in the depeg. A fully invested stablecoin portfolio cannot opportunistically buy USDC at $0.90 because all your capital is in stables experiencing the same fear.
On-chain warning signs of an impending depeg
For algorithmic stables, watch the protocol's reserve ratio in real time. UST's Anchor protocol showed its reserve funding shortfall publicly weeks before the depeg. When a protocol must top up reserves to maintain an artificially high yield, the clock is running. Tools like DeFi Llama's stablecoin tracker, Dune Analytics dashboards, and Chainlink oracle feeds give real-time peg data and reserve visibility.
Secondary market price relative to peg is the fastest signal. If USDC trades at $0.995 on Curve, that is noise. If it trades at $0.97 for more than 30 minutes on multiple venues, something is wrong. Set price alerts on CoinGecko or Coinbase for any stablecoin you hold above $10,000. A $0.96 alert on a $100,000 position gives you time to decide before a potential $0.88 event.
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Stablecoin depeg risk — frequently asked questions
How do I estimate a stablecoin's depeg probability?
Lazy answer: look at historical depegs for similar-mechanism stables. USDC/USDT-style (reserve-backed, regulated issuers): ~0.1-0.5% annual per-event probability, mostly driven by counterparty risk (banking failures, auditor issues). Algorithmic (UST, prior-gen USDN): historical failure rate was closer to 30-50% over a 3-year period. Hybrid/modern (USDe, sUSD): 5-15% annual estimate, heavily dependent on specific mechanism.
Can stablecoin insurance cover depegs?
Some DeFi insurance protocols (Nexus Mutual, InsurAce, Sherlock) offer stablecoin depeg coverage. Cost: typically 1-3% of covered amount per year. Coverage usually requires depeg ≤ $0.95 for 24+ hours and full claim proof. Useful for large positions in riskier stables; often uneconomic for small positions.
Is USDT going to depeg?
Unknown — but the historical track record is surprisingly good. Tether has held peg through every major crypto crisis (2017 BitForex, 2018 crash, 2020 COVID, 2022 FTX, 2023 banking crisis). Criticisms focus on reserve quality and auditor independence, not realized depegs. Probabilistic: low but non-zero risk; not the first stable to fail but could be in the top 3 of risk in a 'black swan' crypto event.
Which stablecoins have never depegged?
USDC: briefly to $0.88 in 2023. USDT: never more than ~1-2% under sustained. DAI: brief 0.5-2% deviations during MakerDAO debt auctions and 2023. PAXG (gold-backed): essentially never. Most 'modern' reserve-backed stables have been within 0.2% of peg 99%+ of the time. Algorithmic stables have depegged more frequently and severely.
What's the realistic max APY I should trust on a 'stable'?
If a stablecoin is paying >15% consistently, ask: where does the yield come from? Legitimate sources: T-bill yield (~5%), lending spreads (3-8%), MEV/funding capture (5-15% in favorable regimes). If the source is unclear or relies on recursive tokenomics ('stake for protocol token rewards, swap to stable'), treat it as high-risk. 20%+ sustained on a 'stable' is almost always a ticking time bomb.
What happened during the USDC SVB depeg and what can I learn from it?
In March 2023, Silicon Valley Bank failed while holding roughly $3.3B of Circle's USDC reserves. USDC traded down to $0.87 on Coinbase as market participants feared reserves were at risk. Circle confirmed reserves were intact and the FDIC backstop covered deposits; USDC recovered to $1.00 within 72 hours. Lesson: even the safest stables can temporarily depeg due to counterparty perception, not actual reserve failure. Holders who sold at $0.88 locked in real losses; holders who bought at $0.90 made immediate profit.
Does holding DAI protect against USDC depeg risk?
Partially. DAI is ~40% backed by USDC (via PSM - Peg Stability Module). When USDC depegged in March 2023, DAI depegged in tandem to about $0.90 before recovering. MakerDAO has since added more RWA (real-world asset) backing to reduce USDC concentration. Current exposure is lower but not zero. If you are trying to avoid USDC risk specifically, sDAI is not a clean hedge — check the current collateral breakdown on makerburn.com.
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