From TerraUSD to YU: Why stablecoins fail to hold $1 and the risks investors can’t ignore

Stablecoins, with a market cap exceeding $300 billion, struggle with mainstream adoption due to risks of loss of peg, collateral issues, and trust dynamics. Failures like those of NuBits, TerraUSD, and USDC highlight vulnerabilities in both algorithmic and fiat-backed models, with the 2022 collapse of TerraUSD resulting in losses of around $50 billion. Notably, Yala’s Bitcoin-backed stablecoin YU also lost its peg in 2025 due to an exploit, showcasing liquidity and cross-chain security risks. Major reasons for depegging include liquidity shortages during market stress, loss of public confidence leading to panic-induced sell-offs, flaws in algorithmic designs, and external pressures from economic instability or incidents like bank failures. These failures demonstrate the fragility and interconnectedness within the stablecoin ecosystem, underscoring potential financial, security, and systemic risks that can affect widespread stability in the crypto market.

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