Stablecoins and depeg risk
Simon sees SOL swing from $100 to $80 and wonders what a stable coin really is. USDC is backed by real dollars, USDT is no longer sold on EU exchanges, and UST, a formula with nothing behind it, lost $40 billion in 2022. USDC dipped to $0.87 in 2023 and recovered because real assets stood behind it.
StablecoinsStablecoinA cryptocurrency pegged to a real-world currency (usually $1). USDC, USDT, DAI.Read the lesson → are cryptocurrencies whose value is pegged to a real-world currency (usually the US dollar). They're a core tool in DeFiDeFiDecentralized Finance — financial services without intermediaries, operating through smart contracts.Read the lesson → strategies. What sets them apart from each other is what actually backs them — and once you understand that difference, you can judge any stablecoin yourself instead of trusting its name.
A stablecoin is like a casino chip. One chip should always be worth 1 dollar. But if the casino goes bankrupt — the chips become worthless. What matters is knowing which "casino" stands behind your chip.
Types of stablecoins
1. Fiat-backed (backed by real fiat money — euros or dollars in a bank)
| Stablecoin | Issuer | What backs it | Audit |
|---|---|---|---|
| USDC | Circle | Dollars + short-term Treasuries | Monthly (Deloitte) |
| USDT | Tether | Claims Treasuries + cash | Quarterly reports |
USDC — the main stablecoin in our strategy. Reasons:
- Regulated by a US company (Circle)
- Independent audit every month
- Fully backed 1:1
USDT — the largest by market cap, but less transparent:
- Tether went a long time without a full audit
- Fined $41M by the CFTC in 2021 for misrepresenting its reserves
- Still, it's the most widely used stablecoin in the world
2. Crypto-backed (backed by other cryptocurrency as collateral)
| Stablecoin | Protocol | What backs it | Decentralized? |
|---|---|---|---|
| DAI | MakerDAO (now Sky) | ETH, USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson →, and others | Yes |
DAI is over-collateralized (for every $1 of DAI, there's more than $1 of collateral behind it). That makes it safer than algorithmic stablecoins.
3. Yield-bearing (stablecoins that pay interest)
A separate category — tokens backed by short-term US Treasury bills, whose value slowly rises along with Treasury interest. The rate is not fixed: it follows the US central bank's rate in both directions (as of 2026-10 the tokenized-treasury sector's 7-day APYAPYAnnual Percentage Yield — the annual interest rate WITH compounding. Always higher than the equivalent APR.Read the lesson → is ~3.6%, rwa.xyz).
⚠️ A practical note: most of these tokens are built for institutions, and an EU retail investor usually can't access them (KYCKYCKnow Your Customer — the identity-verification process on exchanges. Requires a passport or ID.Read the lesson →, residency restrictions). We don't use them in our strategy — debt, LPLPLiquidity Provider — deposits tokens into a pool and earns a share of trading fees.Read the lesson → and reserve are USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson →.
4. Algorithmic and leveraged (yield-bearing) — the new headline risk class
Algorithmic stablecoins try to hold a $1 value with no real backing — only mathematical formulas and incentives. This is the weakest category, and below you'll see exactly why.
But in 2025–2026 the biggest losses did not come from algorithmic coins. They came from "stablecoins" that promised a yield and were formally "backed by assets" — except that asset was a leveraged trading strategy:
| Token | What happened | Date |
|---|---|---|
| xUSD (Stream Finance) | fell from ~$1 to ~$0.24 within a day | 2025-11 |
| deUSD (Elixir) | fell to ~$0.02 within 48 hours (fastest collapse since UST) | 2025-11 |
| USDX | fell to ~$0.40 | 2025-11 |
Elixir had lent Stream Finance $68 million USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → — 65% of the entire deUSD reserve. When Stream's strategy took a loss, the "backing" was gone. Under the old taxonomy ("is it backed by assets?"), all three would have looked safe.
UST was the largest algorithmic stablecoin (~$18 billion market cap).
What happened in May 2022:
- UST started to drift from $1 (depeg)
- The algorithm tried to stabilize it — but only accelerated the fall
- Within 3 days, UST fell to $0.10
- LUNA (the backing token) fell from ~$80 to $0.00001
- ~$40 billion in value was lost
The mechanism you can now recognize: UST rested on a formula alone, not on real assets. Once confidence disappeared, the formula had nothing to hold the price up. That's why the first question for any stablecoin is "what real asset actually backs this?" If the answer is just "an algorithm," you know what you're dealing with.
Depeg — what this word tells you
Depeg (breaking the peg) is when a stablecoin drifts away from its pegged value ($1). This can happen to any stablecoin, so it's worth knowing what happens next — so you can tell a temporary wobble apart from a real collapse.
The March 2023 USDC depeg — an example of what recovery looks like
- Silicon Valley Bank (SVB) collapsed
- Circle had about $3.3 billion at SVB
- USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → fell to $0.87 over the weekend
- On Monday, US regulators (Fed/FDIC/Treasury) guaranteed deposits
- USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → returned to $1.00
What this shows you: the decisive factor isn't "did it fall," it's "what stands behind it." USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → had real assets, so it recovered within days. UST had nothing — so it never came back. The type of backing is your best compass.
USDC vs USDT — a comparison
| Aspect | USDC | USDT |
|---|---|---|
| IssuerIssuerA regulated company that holds the real asset and issues the token representing it.Read the lesson → | Circle (US) | Tether (BVI) |
| Market cap | Tens of billions of USD | >$100 billion |
| AuditAuditAn independent security review of smart-contract code. Not a guarantee, but it reduces risk.Read the lesson → | Monthly | Quarterly reports |
| Regulation | Strong (US) | Weak |
| Transparency | High | Medium |
| DeFiDeFiDecentralized Finance — financial services without intermediaries, operating through smart contracts.Read the lesson → usage | Widespread | Widespread |
| SolanaSolanaA fast blockchain (under 1s, gas under $0.01). Home to the Kamino, Orca and Meteora ecosystem.Read the lesson → | ✅ | ✅ |
| EthereumEthereumA blockchain with smart contracts. We use Aave (lending) and Uniswap (LP) on it.Read the lesson → | ✅ | ✅ |
| Available in the EU (2026-09) | ✅ MiCAMiCAThe EU crypto-asset regulation (Markets in Crypto-Assets).Read the lesson →-authorized | ❌ No longer traded on licensed EU platforms |
USDTUSDTTether USD stablecoin. An alternative to USDC. Liquidity on Solana has historically been smaller — most Solana DeFi liquidity is still in USDC.Read the lesson → is still the largest stablecoin globally by volume — but for an EU user it is no longer an alternative. Tether never filed a MiCAMiCAThe EU crypto-asset regulation (Markets in Crypto-Assets).Read the lesson → e-money token (EMT) application, so USDTUSDTTether USD stablecoin. An alternative to USDC. Liquidity on Solana has historically been smaller — most Solana DeFi liquidity is still in USDC.Read the lesson → was removed from licensed EU platforms: Coinbase Europe (2024-12), Crypto.com (2025-01), Kraken (trading discontinued), and Revolut EU stopped purchases on 2026-07-06, with a final sell-or-withdraw deadline of 2026-08-31.
An important nuance: holding USDTUSDTTether USD stablecoin. An alternative to USDC. Liquidity on Solana has historically been smaller — most Solana DeFi liquidity is still in USDC.Read the lesson → in your own wallet and swapping it on DEXesDEXDecentralized Exchange — a decentralized exchange (e.g. Jupiter, Orca, Uniswap). No KYC required.Read the lesson → (Jupiter, OrcaOrcaA Solana DEX with concentrated liquidity (Whirlpool). The basis of our LP strategy on the Solana network.Read the lesson → SOL) is not prohibited. What no longer exists is the fiat route — you cannot buy USDTUSDTTether USD stablecoin. An alternative to USDC. Liquidity on Solana has historically been smaller — most Solana DeFi liquidity is still in USDC.Read the lesson → with euros on a licensed EU exchange. That's why the default stablecoin throughout this course is USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson →.
- It's regulated and audited
- It's backed 1:1 by real assets
- Circle is a US company with clear rules
- It's well integrated into both the SolanaSolanaA fast blockchain (under 1s, gas under $0.01). Home to the Kamino, Orca and Meteora ecosystem.Read the lesson → and EthereumEthereumA blockchain with smart contracts. We use Aave (lending) and Uniswap (LP) on it.Read the lesson → ecosystems
Depeg risk, and what you do about it
- A stablecoin can drift from $1 (depeg) → diversify across stablecoins — don't hold 100% in one type, so a single wobble doesn't hit everything
- Backing can be unclear → check the reserves yourself (circle.com/transparency) — see the real assets instead of trusting a name
- A crisis can unfold fast → follow the news and have a plan in advance: "if USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson → drops to $0.95 — I do X"
- Algorithmic stablecoins have no real collateral → choose only ones backed by real assets (USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson →, DAI), and recognize and avoid algorithmic ones
- A yield-bearing "stablecoin" is often a leveraged fund, not money → ask WHO generates that yield, and what happens to redemptions when the strategy takes a loss. In November 2025 xUSD fell to ~$0.24 and deUSD to ~$0.02 within 48 hours, even though both were presented as "backed." If a yield sits far above the US Treasury yield (~4% as of 2026-10), someone is being paid for taking that difference in risk
Every risk here has a concrete response. You don't need to fear it — you manage it.
Summary
This lesson claimed USDC is backed by real assets and that UST collapsed. Verify both claims using real sources — takes about 7 minutes, nothing to buy.
This is learning, not investing — use only small amounts you treat as tuition.
You just compared USDC and UST's backing using primary sources — a skill most crypto holders never pick up.