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Stablecoin Shocks

Stablecoins are meant to provide stability in the volatile world of crypto, but recent events show they aren't immune to risk. Here are two major depegging incidents that highlight their vulnerabilities:

1. Terra’s UST (May 2022): Terra’s UST stablecoin, meant to hold a $1 peg, collapsed in May 2022 despite algorithmic mechanisms and collateral backing. The depegging shattered confidence, leading to the collapse of the entire Terra ecosystem and impacting countless crypto projects.

2. Circle’s USDC (March 2023): In March 2023, Circle’s USDC briefly depegged following the collapse of Silicon Valley Bank. This incident exposed the delicate link between traditional finance and the digital asset world, showing how crises in one sector can ripple into another.

These incidents remind us that while stablecoins aim for consistency, they can still face significant risks from market events.