NYDIG is challenging what it identifies as one of the most enduring myths in crypto: the belief that stablecoins are pegged to the U.S. dollar.
In a summary of last week’s $500 billion cryptocurrency market sell-off, NYDIG’s Global Head of Research, Greg Cipolaro, highlighted the volatility of so-called stable assets like USDC, USDT, and Ethena’s USDe, which fell to as low as $0.65 on Binance.
These price fluctuations demonstrate that these tokens do not maintain fixed pegs; instead, they fluctuate in response to market supply and demand.
“Stablecoins are not pegged to $1.00. Period,” wrote Cipolaro in a research note. “In reality, stablecoins function as market-traded instruments whose prices vary around $1.00 due to trading dynamics.”
He contended that the term “peg” suggests a guarantee that is, in fact, absent. What seems like stability is merely a result of arbitrage: traders buy when the value drops below $1 and sell when it goes above, with issuers providing means to create or redeem tokens according to these price movements.
During moments of panic, this system may falter. USDT and USDC traded above $1 amidst the crash, while USDe, which employs derivative positions to remain “delta-neutral” and earn yield, saw significant decline. Although it performed poorly on Binance — which compensated users afterward — it also experienced major drops across other significant exchanges.
As a result, he noted, there exists a fragmented ecosystem where even commonly used assets can fail in real-time, leading to user misconceptions about the inherent risks.
One bright spot during the downturn was the lending markets. The leading DeFi protocol Aave only had to liquidate approximately $180 million worth of collateral, which is 25 bps of its total value locked. NYDIG itself experienced no losses.
