Why Is a Spread Deviation from the Peg a Concern for Stablecoin Holders?
A deviation, or 'de-peg,' indicates a loss of confidence in the stablecoin's ability to maintain its value. A wide spread around the peg means that holders cannot exit their position near the expected value without incurring a significant loss.
This signals potential instability, which can trigger a bank-run scenario and further destabilize the peg.
Glossar
Holders
Ownership ⎊ Holders are individuals or entities possessing a specific cryptocurrency or financial derivative.
Loss of Confidence
Deterioration ⎊ Within cryptocurrency derivatives and options markets, a loss of confidence manifests as a rapid and often unpredictable decline in market participant conviction regarding the underlying asset's valuation or the stability of associated financial instruments.
Spread Deviation
Measurement ⎊ Spread Deviation quantifies the measurable difference between an asset's instantaneous market spread and a calculated benchmark, such as its historical average or a theoretical minimum based on volatility and transaction costs.