Stablecoin Peg Risk
The loan's stablecoin could lose its $1 peg.
What is this risk?
Most Bitcoin-backed loans are issued in stablecoins — tokens designed to maintain a $1.00 value. However, stablecoins can lose their peg during market stress, as happened with UST/Terra's collapse. If the stablecoin you borrowed depegs, the dynamics of your loan change unpredictably. You might owe more in real value, or repayment becomes complicated. Different stablecoins have different risk profiles based on their backing and mechanism.
Think of it this way...
“It's like a check that might suddenly be worth less than the amount written on it. You borrow $10,000 worth, but if the stablecoin drops to $0.90, that same $10,000 worth is now only $9,000 in purchasing power.”
How to Protect Yourself
Practical steps you can take to reduce or manage this risk
Understand what backs the stablecoin you're using — is it fully collateralized with audited reserves?
Prefer stablecoins with long track records of maintaining their peg (like USDC or DAI).
Monitor stablecoin prices alongside Bitcoin — significant deviations warrant attention.
Have a plan for what you'll do if the stablecoin starts to depeg — don't freeze in uncertainty.
Avoid algorithmic stablecoins without substantial overcollateralization for important positions.
See This Risk in Action
Explore real-world scenarios where this risk plays a role
Other Risks to Consider
Explore other risks to get a complete picture
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