NYDIG’s new research—released after a $500B wipeout—lands a hard truth: stablecoins don’t live at $1; they orbit it. USDT and USDC even traded above par amid venue stress, while Ethena’s USDe plunged to $0.65 on Binance before snapping back. This is not a bug in crypto; it’s how market plumbing behaves under shock

“The $1 peg is an illusion.” That, in essence, is NYDIG’s message following the violent market reset that erased roughly $500 billion in crypto market value in mid-October. In the same window, Ethena’s USDe cratered to about $0.65 on Binance before recovering, while USDT and USDC printed premiums above $1 on some venues as liquidity fractured. None of this should be surprising if you treat stablecoins as tradable instruments whose prices are maintained by incentives, arbitrage, and market access—not by magic.

The Week That Broke the Illusion

Across October 10–12, the market endured the largest liquidation cascade since 2022: tens of billions in open interest were wiped out within hours, risk assets reeled, and order books thinned. Macro headlines (tariff shocks, equity stress) primed the move; leverage and venue-specific structure amplified it. In the crossfire, stablecoins revealed their true nature—they are not dollars, they are claims about dollars with operational constraints and settlement paths.

NYDIG’s Thesis in Plain English

In its post-mortem, NYDIG’s Greg Cipolaro argues that stablecoins “gyrate about $1,” and the belief in a fixed, guaranteed $1 is a category error. The peg is a target, sustained when the machinery works: arbitrageurs can mint/redeem, market-makers can warehouse risk, and venues can settle without friction. When that machinery jams, prints diverge—sometimes above, sometimes below—depending on where liquidity is trapped.

USDe at $0.65: Anatomy of a Venue Shock

USDe’s plunge to roughly $0.65 on Binance was real and violent—captured in multiple timelines and analyses. Crucially, it was venue-specific. On primary DeFi pools, the peg dislocated far less; on Binance, the combination of oracle/market stress, lack of direct mint/redeem, and liquidation cascades created a temporary air pocket. In other words: collateral model matters, but venue design and access mattered more in this episode.

Why Some Stables Traded Above $1

At the same time, reserve-backed stables like USDT and USDC printed premiums on stressed order books. This is the mirror image of a depeg: when market participants scramble for settlement cash and redemptions are slow or gated by workflow, they pay a temporary surcharge for immediate inventory. That premium is not a fundamental repricing of the issuer’s assets; it’s a tax on urgency.

The Peg Is a Process, Not a Promise

Stablecoins hold near $1 because of three overlapping loops:

Asset loop: the issuer holds short-duration, dollar-like assets; in normal times this anchors fair value.
Arb loop: authorized players can mint (deposit dollars, receive tokens) or redeem (return tokens, receive dollars), compressing large divergences.
Plumbing loop: exchanges, bridges, and wallets provide the pipes. If the pipes clog (latency, oracle slippage, API halts), price signals get noisy and discounts/premiums swell.

When stress hits, the plumbing loop often fails first. That is why where you looked on October 10–12 mattered as much as what you looked at.

“But Aren’t Reserve-Backed Coins Safe?”

Reserve-backed models (USDT/USDC) behaved better than yield/derivative-backed models (like USDe) under this particular shock—but “better” is not “immune.” In panics, even fiat-backed stables can trade at a premium or discount if redemption queues form or if large market-makers temporarily retreat. NYDIG’s point is specific: the idea of a fixed $1 peg is a mental shortcut; in markets, everything clears at a price.

What the Liquidations Taught Us

DeFi lending venues endured a sizable stress test. Aave alone processed roughly $180M in liquidations without human intervention—impressive, but also a reminder that liquidation paths can feed back into stablecoin markets when collateral baskets include stables or wrappers. During “everything sells” regimes, those loops can deepen discounts or premiums even for otherwise robust coins.

Five Practical Lessons for Users

Venue risk is real: A quote on one exchange is not the market. Cross-check DeFi pools, major CEXs, and credible aggregators before acting on a “depeg.”
Know the redemption path: Who can mint/redeem, at what cadence, and with what settlement windows? A slow path = bigger intraday price gaps.
Premiums are also depegs: Paying $1.01–$1.03 in a panic is still a depeg—just a positive one. Plan for both directions.
Don’t fund long-tail positions with exotic stables: If your collateral can gap, your liquidation math will betray you at the worst time.
Have non-correlated “dry powder”: If all your cash leg is a single stablecoin on a single venue, your buying power is pro-cyclical (it shrinks when you most need it).

Four Checks for Analysts (to Separate Signal from Drama)

Cross-venue spreads: Compare the same stable across Binance/Coinbase/OKX and a major DeFi pool (e.g., Curve). Divergence = plumbing stress, not necessarily solvency stress.
Mint/burn telemetry: Look for on-chain issuance/redemptions after the move—do they close the gap?
Order-book depth: A $50k sweep should not move price cents in normal times. If it does, your venue has a transient vacuum.
Basis/funding linkages: When stables wobble, perp funding on majors should reflect inventory stress; if it doesn’t, question the “depeg.”

What Builders and Exchanges Should Change

Explicit mode labels: Stablecoin UIs should display “off-par by X bps on this venue” when local price diverges from a cross-venue index.
Faster bridges to dollars: Shorten redemption loops (banking hours, cutoffs) or publish reliable windows so arbitrageurs can size risk with confidence.
Oracles with venue-aware fallbacks: Reduce overreliance on a single book during stress; weighted oracles across multiple sources curtail venue-specific air pockets.
Transparent incident playbooks: If a venue-specific failure occurs (as with USDe on Binance), publish post-mortems and, where appropriate, compensate users promptly to prevent feedback panic.

Regulatory Angle: Don’t Confuse Par with Promise

Policy frameworks in the U.S. and U.K. increasingly assume reserve quality, custody separation, and disclosure. Useful—but still insufficient in a real-time panic. Good rules can improve the asset loop; they can’t guarantee the plumbing loop. The October episode reinforces that “stablecoin = dollar” is a messaging simplification; stress events will continue to produce off-par prints even with pristine reserves.

Context, Not Comfort: PYUSD’s $300T ‘Mint’ and Market Optics

Just days before the crash, Paxos (PayPal’s partner) accidentally minted an astronomical supply of PYUSD in an internal transfer, then burned it within minutes. Funds were reportedly safe, but the optics reminded everyone that issuers can create/destroy supply rapidly and that control-plane errors do happen. It doesn’t mean reserve-backed models are “fake”; it means operational excellence—not slogans—earns trust.

Bottom Line

Stablecoins are not digital dollars; they’re instruments designed to track dollars. In quiet markets, arbitrage and redemptions keep them near $1. In panics, plumbing determines prints: some stables can crater (USDe to $0.65 on Binance) while others trade rich to par as users pay for immediacy. NYDIG’s blunt takeaway is right: the peg is a goal, not a guarantee. Treat stablecoins with the same respect you give any market instrument—check the venue, understand the redemption path, and size your risk so a venue-specific air pocket doesn’t become a portfolio-level hole.

Note: This article is analysis, not investment advice. Do your own research and manage risk prudently.