Glossary
Peg
A target exchange rate a stablecoin is engineered to track — typically 1 USD — and the mechanism (collateral, redemption, arbitrage) that defends it.
A stablecoin's peg is the price it is designed to trade at — almost always 1 USD, sometimes 1 EUR or a basket. The peg holds because of the mechanism behind it: fiat redemption, on-chain collateral liquidation, or algorithmic supply changes.
Pegs break when the mechanism fails or when confidence in it does. USDC briefly broke peg in March 2023 when SVB held part of its reserves; UST broke and never recovered in May 2022 when its algorithmic mechanism unwound. Watching the peg under stress is the single best test of a stablecoin's design.