A stablecoin is supposed to be the most boring thing ever: 1 token = 1 dollar, period. Except recent history shows at least three times when that “1” wavered. Looking back at them is the best way to understand what you’re really holding when you keep USDT or $USDC in your account.
May 2022: the stablecoin with nothing backing it
UST, the stablecoin in the Terra ecosystem, wasn’t backed by dollars in a bank. It held its value thanks to an algorithmic mechanism: you could always exchange 1 UST for $1 worth of LUNA, its sibling token, which the protocol could create at will.
On May 7, heavy UST selling pushes the price below $1. To defend it, the system mints LUNA on a massive scale. According to the Federal Reserve Bank of New York, the supply of LUNA rises from 365 million tokens on May 9 to more than 6 trillion on May 13. The more they print, the further the price collapses, and the more they have to print. In one week, around $17 billion in UST value and nearly $21 billion in LUNA disappear. The remnants of this chain are still traded today under the name $LUNC.
May 2022, the same day: USDT wobbles but holds
The panic spreads. On some platforms, USDT slips to around $0.94 for a few hours (CoinGecko). The difference with UST? Tether honors redemptions: nearly $7.8 billion in USDT was redeemed between May 9 and 17, according to CoinGecko. Arbitrage traders—who buy assets that are priced too low and then sell them at the right price—bring the price back to $1.
March 2023: the problem comes from a bank, not crypto
On March 10, the US bank Silicon Valley Bank fails. Circle, the issuer of USDC, announces that $3.3 billion of its reserves, around 8% of the total, are locked up there. On March 11, USDC falls to around $0.88. On March 12, US authorities guarantee all the bank’s deposits, and the price returns to $1 as soon as it reopens.
What these three episodes teach us
A stablecoin rests on a single promise: that it can be exchanged for one real dollar at any time. When the issuer holds real liquid assets (cash, short-term US Treasury bills) and pays out promptly, price deviations remain brief. When the promise relies on an algorithm or a token that can be printed at will, it can evaporate in a matter of days.
The risk isn’t necessarily in the blockchain. In 2023, the weak link was a traditional bank.
The price shown on a platform can diverge from the dollar during a panic, even if the reserves are sound. Selling during a sharp drop often means locking in your loss at the worst possible time.
What has changed since then
The rules are getting stricter. In Europe, the MiCA regulation requires stablecoin issuers to hold reserves and grant redemption rights. In the United States, the GENIUS Act, signed in July 2025, requires reserves at least equal, dollar for dollar, to the tokens in circulation. That doesn’t make a stablecoin perfect, but it does make its promises verifiable.
So the useful question for you isn’t “is it stable?” but “what backs this dollar, and who reports on it?” Reputable issuers publish regular reports on their reserves. An unknown “stablecoin” promising high returns without saying what it holds is exactly the kind of scenario we saw in 2022.
And you, when you hold stablecoins, have you ever looked at what’s behind them, or do you just trust the “1.00” shown on screen?
Educational content, not financial advice.
#Stablecoins #USDC #Terra #CryptoEducation #Binance