The reality of the stablecoin chain-depeg that shakes DeFi protocols

Over the past few months, the stablecoin market has faced unprecedented turmoil. Several projects such as xUSD, USDX, and deUSD are on the brink of depegging, and the ripple effects are spreading throughout the entire DeFi ecosystem.

Root Causes of Depegging: Design Vulnerabilities

The background of these stablecoin collapses lies in their design, which overly relies on delta-neutral strategies. The multi-layered derivative structures embedded in these mechanisms are structurally prone to failure when the market moves unexpectedly. Particularly problematic is the reliance on collateral circulation within a limited ecosystem, despite claims of decentralized governance.

Impact on DeFi Protocols

Major DeFi protocols like Euler, Stream, Compound, and Aave are experiencing direct stress tests due to these depegging events. With the stablecoin market exceeding $30 billion, it has become clear that the collapse of a single project can have systemic effects on the entire market.

Three Key Challenges Highlighted

Lack of Transparency: Many projects do not sufficiently disclose collateral composition or the operational mechanisms of their algorithms, making it difficult for users to accurately assess true risks.

Collateral Adequacy Issues: Circular collateral and incentivized liquidity through token incentives have led to an overestimation of actual collateral value.

Regulatory Oversight Delays: The rapidly growing sector currently lacks appropriate monitoring systems to keep pace.

This chain of depegging events has reaffirmed that the DeFi market is still in its developmental stages. For investors, it is increasingly important to rigorously scrutinize project transparency and the soundness of underlying economic models.