How Does a Stablecoin De-Pegging Event Affect the Insurance Fund?
A stablecoin de-pegging event, where the stablecoin loses its $1 peg, reduces the effective purchasing power of the insurance fund if it is held in that stablecoin. If the fund is meant to cover a deficit in USD terms, a de-pegged stablecoin will not be able to cover the full amount, potentially leading to a shortfall and the need for ADL.
Glossar
Stablecoin De-Pegging
Trigger ⎊ Stablecoin de-pegging represents a deviation from the intended 1:1 parity with its underlying reference asset, typically the US dollar, and initiates cascading effects within cryptocurrency markets.
Stablecoin De-Pegging Event
Event ⎊ A stablecoin de-pegging event signifies a substantial and sustained deviation of a stablecoin's market price from its intended peg, typically one-to-one with a fiat currency like the US dollar.
De-Pegging Event
Contagion ⎊ A 'De-Pegging Event' represents a critical failure in the stability mechanism of a synthetic asset, often triggering immediate contagion across the broader crypto and derivatives landscape.