- When a stablecoin "depegs," it means its value has deviated significantly from its intended peg. 

- For instance, if a USD-pegged stablecoin trades at $0.95 or $1.05 instead of $1.00, it's considered depegged. 

- Minor fluctuations are normal, but substantial or prolonged deviations indicate a problem.

Stablecoins can depeg for several reasons:

1. Market pressure

Extreme market conditions can lead to massive sell-offs, overwhelming the stabilising mechanisms.

2. Loss of confidence

If users doubt the stablecoin's backing or the issuer's credibility, they may rush to sell, causing a depeg.

3. Insufficient collateral

If a stablecoin isn't adequately backed by reserves, it may struggle to maintain its peg during high-stress periods.

4. Algorithm failures

For algorithmic stablecoins, flaws in the stabilising mechanism can lead to depegging.

5. Regulatory issues

Legal challenges or regulatory crackdowns can shake confidence in a stablecoin.

6. Liquidity crises

If there's not enough liquidity in the market, it can be difficult to maintain the peg.

7. External economic factors

Major economic events or changes in monetary policy can affect a stablecoin's stability.

1. Loss of user funds

Investors holding the stablecoin may face significant losses if the value drops substantially.

2. Market volatility

A major stablecoin depegging can trigger broader crypto market sell-offs and instability.

3. Loss of trust

Depegging events can erode confidence in the entire stablecoin market and the specific project.

4. Regulatory scrutiny

Such events often lead to increased regulatory attention on stablecoins and the broader crypto industry.

5. Disruption of crypto ecosystems

Many DeFi protocols rely on stablecoins; a depeg can disrupt these systems. And as stablecoins are often used as collateral, depegging can trigger mass liquidations and potential system-wide instability.

6. Project failure

In extreme cases, like with Terra/LUNA, a stablecoin depeg can lead to the complete collapse of the associated project and ecosystem.