NYDIG Debunks Stablecoin Peg Myth Amid $500 Billion Crypto Market Turmoil
NYDIG Challenges Stablecoin Stability Perception
NYDIG, a prominent financial services firm focusing on Bitcoin, has taken a stand against a long-held belief in the cryptocurrency space: that stablecoins maintain a consistent peg to the U.S. dollar.
Following a $500 billion downturn in the crypto market, NYDIG's Global Head of Research, Greg Cipolaro, highlighted the volatility of so-called stable assets like USDC, USDT, and Ethena's USDe, which dipped to $0.65 on Binance.
These fluctuations exposed that these tokens are not fixed to a $1 value but fluctuate with market supply and demand.
"Stablecoins are not pegged to $1.00. Period," Cipolaro stated in a research note. "They are market-traded instruments with prices that vary around $1.00 due to trading dynamics."
Cipolaro argued that the term "peg" suggests a guarantee that doesn't exist. The perceived stability is a result of arbitrage: traders buy when prices fall below $1 and sell when they rise above, with issuers adjusting supply through token creation or redemption.
During periods of panic, this system can falter. While USDT and USDC exceeded $1 during the crash, USDe, which relies on derivatives for stability, saw a significant drop. Though Binance later compensated affected users, similar declines were observed across other major exchanges.
The outcome, Cipolaro noted, is a fragmented market where even widely-used assets can falter, leading to user misconceptions about actual risks.
Amid the chaos, the lending markets showed resilience. DeFi leader Aave liquidated $180 million in collateral, only 25 basis points of its total value locked, while NYDIG reported no losses.