Are you new to crypto? Then make sure you understand the concept of 'loss of peg' before investing your money. This is a painful lesson that the entire market has paid a very high price for.

What is loss of peg? Simply put, stablecoins (USDT, USDC, DAI...) are created with a single purpose: to maintain a stable value of 1 USD. This is called 'peg'—meaning anchoring the price tightly to the real dollar. The theory is that 1 USDT always equals 1 USD, regardless of market crashes or not.

But what if one day, that stablecoin can no longer maintain this level? For example, 1 USDT drops to only 0.95 USD, or worse, falls to 0.10 USD. That is loss of peg—and that’s when hell begins.

When talking about loss of peg, it’s impossible not to mention the LUNA-UST incident in 2022. Back then, UST (stablecoin of the Terra) ecosystem was a symbol of trust, ranking among the top stablecoins with billions of USD in value. People believed it was solid. But then, one day, everything collapsed.

UST started losing its peg. From 1 USD, it dropped to 0.9, then 0.8, then 0.3, and eventually only a few cents. It crashed so fast that no one could believe it. Along with it, LUNA—the native token of the Terra system— which once stood over 100 USD, plummeted down below 0.0001 USD. The entire system collapsed like dominoes.

Some people lost hundreds of millions, some chased after tens of thousands, and some small investors lost 100% of their assets. The pain isn’t just about losing money—it’s about losing trust, losing direction. Many people suffered psychological breakdowns after that catastrophic crash.

So why do stablecoins lose their peg? There are a few main reasons. First, insufficient collateral assets—printing 1 billion tokens but only having $100 million in reserve, causing users to lose confidence. Second, being attacked or deliberately manipulated to crash the price, causing panic selling. Third, weak algorithmic mechanisms—like UST, which had no real USD backing, only used LUNA to 'balance,' and when the price fell, everything collapsed.

Loss of peg is simple to understand, but its consequences are very real. Not all stablecoins are safe. If you see strong signs of losing peg, withdraw immediately before it’s too late. Always choose stablecoins with clear collateral assets—USDT, USDC, FDUSD, TUSD, or DAI— which carry risks but are more transparent than UST was in the past.

As a newbie, remember: peg is the thread that holds trust in stability. When that thread breaks, you not only lose money but also lose faith. LUNA and UST are painful lessons for the entire market. Read carefully, stay alert, so that no one has to write: 'I quit crypto, I wish I had never known about it' 😔