A stablecoin aims to maintain a 1:1 value with its pegged currency, usually the US dollar, but this peg is maintained by the issuer's reserves and mechanisms, not guaranteed by a government the way some bank deposits are insured. Understanding what can cause a stablecoin to lose its peg and how different designs handle stress helps assess the risk.
Published September 15, 2026 · 2 min read
A stablecoin's peg is maintained by the issuer's reserves and mechanisms, which aim to keep the value at 1:1 with the pegged currency. When the market price drifts above or below the peg, arbitrage opportunities and issuer actions are meant to bring it back. A stablecoin can temporarily trade slightly away from its peg during periods of market stress, usually returning to the peg as these mechanisms correct the price.
Understanding what backs a specific stablecoin is a relevant factor in assessing how resilient its peg is likely to be. Some stablecoins are backed by direct cash and cash-equivalent reserves, held in accounts that can be audited. Others use more complex or algorithmic mechanisms, which rely on incentives and other tokens to maintain the peg rather than direct reserves. History has shown that not all stablecoin designs are equally resilient.
Some past stablecoins, particularly ones backed by complex algorithmic mechanisms rather than direct cash-equivalent reserves, have lost their peg permanently during a crisis. Widely-used fiat-backed stablecoins have generally maintained theirs through market stress, though temporary deviations do occur. The difference in outcomes reflects the different mechanisms and reserves backing each design, and the market's confidence in those mechanisms during periods of uncertainty.
Diversifying which specific stablecoin is held, or keeping only near-term spending needs in any single stablecoin, are general risk-management approaches some users apply. This is similar to not concentrating any one type of financial asset entirely. Checking what backs a stablecoin before holding it, and staying informed about any changes to reserves or mechanisms, are practical steps for anyone holding stablecoins beyond immediate spending.
Nexus Pay supports funding across six networks, including stablecoins, with in-app coin swaps that let you move between different assets. The card itself spends in local currency, so the stablecoin you hold in the wallet is converted when you make a purchase. This means you can choose which stablecoin to hold based on your own assessment of backing and risk, and swap between them within the app as your preferences change.
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