unpeg

Unpeg refers to the process of a currency or cryptocurrency moving away from its fixed exchange rate or peg to another asset, such as a fiat currency or another cryptocurrency. When a currency is pegged, its value is intentionally maintained at a stable level relative to the pegged asset. This peg is typically established through market interventions by the issuer, such as buying or selling the pegged asset to influence supply and demand.

An unpegging event occurs when this fixed relationship breaks down. This can happen for various reasons, including economic instability in the country or network issuing the currency, speculative attacks, a loss of confidence in the pegging mechanism, or significant changes in the underlying market conditions. For fiat currencies, an unpegging can lead to devaluation or revaluation, impacting trade, inflation, and international investment.

In the context of cryptocurrencies, stablecoins are often pegged to fiat currencies like the US dollar. If a stablecoin "unpegs," its market price deviates significantly from its intended value. This can be triggered by issues with the collateral backing the stablecoin, market panic, or regulatory uncertainty. An unpegging event for a stablecoin can have ripple effects throughout the cryptocurrency ecosystem, potentially affecting liquidity and investor confidence. The process of unpegging is a significant event that can have considerable economic and market consequences.