Stablecoins' $1 Peg Is a 'Misconception,' Says NYDIG After $500 Billion Market Meltdown

Core Insights - NYDIG challenges the notion that stablecoins are reliably pegged to the U.S. dollar, asserting that they are subject to market fluctuations rather than fixed values [1][2] - The recent $500 billion sell-off in the crypto market highlighted the instability of stablecoins like USDC, USDT, and Ethena's USDe, which dropped to as low as $0.65 [1][3] Group 1: Stablecoin Dynamics - Stablecoins are not truly pegged to $1.00; instead, their prices fluctuate based on market supply and demand [2] - The term "peg" implies a guarantee that does not exist, as stablecoins are market-traded instruments influenced by trading dynamics [2] - During market panic, the mechanisms that maintain stability can fail, leading to significant price drops for stablecoins [3] Group 2: Market Performance - USDT and USDC traded above $1 during the recent crash, while USDe experienced a severe collapse [3] - The crypto ecosystem is fragmented, with even widely used assets failing in real-time, leading to a misunderstanding of actual risks by users [3] - In contrast, the lending markets, particularly the DeFi protocol Aave, performed well during the crash, liquidating only $180 million worth of collateral, which is 25 basis points of its total value locked [4]