Crypto Depegging and Systemic Risk in Stablecoins: Stress-Testing Portfolio Resilience in a De-Pegged World

The collapse of Terra's UST in 2022 and the 2025 YU stablecoin exploit have exposed a harsh truth: stablecoins, once seen as the bedrock of crypto markets, are far from immune to systemic risk. As stablecoin market capitalization surpassed $300 billion in 2025, the frequency and severity of depegging events-where stablecoins lose their $1 parity-have forced investors and institutions to confront a critical question: How can portfolios withstand the turbulence of a de-pegged world?

The Anatomy of Depegging: From Algorithmic Fragility to Fiat Vulnerabilities

Stablecoins are designed to offer stability, but their mechanisms-whether algorithmic, fiat-backed, or crypto-collateralized-carry inherent risks. The 2022 UST collapse, which erased $40 billion in value, demonstrated how algorithmic stablecoins rely on fragile market confidence. When arbitrage mechanisms failed, a death spiral ensued, dragging down the broader crypto market, as Market Insiders reported.

Fiat-backed stablecoins, meanwhile, are not immune to external shocks. In March 2023, the collapse of Silicon Valley Bank (SVB) triggered a depeg of USDC, which plummeted to $0.87 as investors questioned the safety of its reserves held at SVB, according to an S&P Global report. Similarly, the 2025 YU exploit-a Bitcoin-backed stablecoin-highlighted vulnerabilities in cross-chain security and liquidity. Attackers minted 120 million unauthorized YU tokens, selling them for USDC and causing the stablecoin to drop to $0.20 before recovering to $0.79, as described by OurCryptoTalk. These events underscore that even well-collateralized stablecoins can falter due to technical flaws, liquidity shortages, or cascading trust erosion.

Stress-Testing: From Reactive to Proactive Risk Management

The recurring depegging crises have pushed stress-testing from a niche concern to a strategic imperative. Modern frameworks now simulate four key failure modes: collateral crises, algorithmic death spirals, regulatory freezes, and liquidity crunches, as outlined in Markaicode's framework. For example, a practitioner who weathered the 2023 USDC depeg developed a modular stress-testing system that integrates real-time data, historical scenarios, and Monte Carlo simulations. This approach allowed their protocol to model worst-case outcomes, such as a 50% depeg lasting 72 hours, and adjust risk exposure accordingly, as Anaptyss' methodology shows.

Academic research further refines these tools. A 2025 study in the Pacific-Basin Finance Journal introduced a dynamic threshold model for depegging risk, factoring in variables like monthly trading volume and sentiment indicators, detailed in a Pacific-Basin study. Meanwhile, kurtosis-based stress testing-designed to account for "fat tail" risks-has proven more effective than traditional models in predicting extreme losses during sudden depegging events, according to a Samara analysis.

Systemic Risks and Portfolio Implications

Depegging events are not isolated incidents; they reverberate across crypto and traditional markets. During the 2023 USDC depeg, DAI-a stablecoin collateralized in USDC-also lost its peg, amplifying contagion risks, as an S&P Global report noted. Similarly, the 2025 YU exploit triggered halts in deposits and withdrawals on exchanges like Bybit and OKX, stifling arbitrage and prolonging recovery, as reported by OurCryptoTalk.

For investors, the lesson is clear: stablecoins can no longer be treated as risk-free assets. A 2025 analysis in MDPI found that during stress events, assets like ETH, LINK, and UNI often amplify losses, while stablecoins like DAI can act as buffers, offering nuanced roles in contagion dynamics (an MDPI analysis). This duality necessitates a nuanced approach to portfolio construction, where stablecoins are both a hedge and a potential liability.

Regulatory Evolution and the Path Forward

Regulators are catching up. The U.S. passed the GENIUS Act in July 2025, mandating 1:1 collateralization and monthly audits for payment stablecoins, according to a OneDayAdvisor analysis. While these measures aim to reduce systemic risk, they also highlight the sector's fragility. Moody's Digital Asset Monitor (DAM), launched in 2023, now tracks depegging risks via on-chain and off-chain metrics, offering investors a real-time view of issuer reliability and reserve quality through Moody's Digital Asset Monitor.

However, regulation alone cannot eliminate risk. Investors must adopt proactive strategies, such as diversifying stablecoin exposure, prioritizing transparently audited assets (e.g., USDC post-GENIUS), and integrating stress-testing into portfolio management. For instance, a 2025 case study on ScienceDirect showed that dollar-backed stablecoins reduced portfolio tail risk by 30% during volatile periods (a ScienceDirect case study).

Conclusion: Building Resilience in a Fractured Ecosystem

The depegging crises of the past three years have rewritten the rules of crypto investing. Stablecoins, once seen as a bridge to mainstream finance, now require the same rigorous scrutiny as any high-risk asset. Stress-testing is no longer optional-it is a survival mechanism.

For institutions and individual investors alike, the path forward demands a dual focus: technical due diligence on stablecoin protocols and strategic diversification to mitigate cascading risks. As the market evolves, those who treat stablecoins as volatile assets-rather than cash equivalents-will be best positioned to navigate the next depegging storm.