Scenario: a stablecoin in your stable pool loses its peg
Priya provides liquidity to a two-coin stable pool with amplification A = 100, holding equal amounts of two USD stablecoins. One coin slips below its peg. How much of the pool ends up in the weaker coin, and what is her loss compared with simply holding both?
The assumptions
| Input | Value |
|---|---|
| Pool | Two coins, StableSwap invariant, A = 100 |
| Start | Balanced: 1 unit of each coin |
| Event | Coin A trades below $1 outside the pool |
| Fees | Ignored to isolate the effect |
Step by step
- Why stable pools are flat near the peg. A high amplification makes the pool behave almost like a fixed 1:1 exchange around the peg. That's what gives small trades very low slippage.
- What happens on a depeg. When coin A trades at 0.90 outside the pool, arbitrage keeps selling A into the pool until its internal price matches. With A = 100 the pool ends up holding 1.865 units of A and 0.148 of B: 92.6% of the pool is now the weaker coin.
- The loss vs holding. Valued at 0.90 for A, the pool is worth −3.86% less than holding one of each coin. A 50/50 constant-product pool at the same price would lose only −0.14%.
- If the coin recovers. If coin A returns to $1, the pool rebalances back and most of the loss reverses. If it never recovers, liquidity providers are left holding mostly the failed coin.
Loss vs holding by depeg level and amplification
| Coin A price | A = 0 (constant product) | A = 20 | A = 100 | A = 500 |
|---|---|---|---|---|
| 0.99 | 0.00% | −0.05% | −0.17% | −0.31% |
| 0.97 | −0.01% | −0.38% | −0.83% | −1.17% |
| 0.90 | −0.14% | −2.59% | −3.86% | −4.59% |
| 0.70 | −1.57% | −12.46% | −15.12% | −16.48% |
Questions people ask
Why is the loss bigger with higher A?
A higher amplification keeps the pool's internal price near 1:1 for longer, so arbitrage can push far more of the depegged coin into it before the price adjusts.
Are stablecoins insured?
No. CDIC lists cryptocurrencies, including stablecoins, as not covered by deposit insurance.
Names, rates and prices in this scenario are illustrative and computed for education. They aren't forecasts, quotes or recommendations.
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