What Is a “De-Peg” Event for a Stablecoin, and How Does It Affect the Pool?

A de-peg event occurs when a stablecoin's market price deviates significantly from its intended peg, typically 1 USD. If a stablecoin in a pool de-pegs downward, arbitrageurs will quickly drain the other, still-pegged asset from the pool, exchanging it for the now-cheaper de-pegged asset.

This results in the liquidity provider being left with a disproportionately large amount of the de-pegged, lower-value asset, incurring a significant impermanent loss.