Recently, the death spiral of UST and LUNA was a big shock, and many newbies may have concerns about the risk of depeg other stablecoins, here we briefly explain.

Crypto stablecoins are divided into three main categories.

• Centralized fiat-backed stablecoins, such as USDT, USDC, BUSD

• Decentralized, over-collateralized stablecoins, such as DAI

• Algorithmic stablecoins, such as UST, FRAX

For centralized fiat-backed stablecoins, the only risk may be the issuer's acceptance, as USDT has historically been off-anchor for brief periods, but has been able to return to anchor pricing quickly. Currently, compliant stablecoins like USDC are gaining market share.

For decentralized over-collateralized stablecoins, because they are over-collateralized, there is basically no risk of long-term depeg, like DAI, which is a veteran project that has been upgraded after various extreme market changes, and is more able to keep the price peg, but also because of the over-collateralization method, DAI's market share cannot expand rapidly.

For algorithmic stablecoins, it depends on the algorithm mechanism.

The UST is maintained by the destruction of the LUNA mint to maintain the stability of the UST, in addition to the issuance of the UST from the Anchor unsustainable high interest rate, in the case of market tailwind, everything is fine, but the market headwind, Anchor can not pocket the circulation of the UST, the UST depeg and LUNA fall is triggered the death spiral.

For FRAX, although it is a fractional collateralized model, the collateralization ratio is usually around 85%, which means that in the worst case scenario, $0.85 is also the lower limit for de-anchoring, while the project treasury is constantly generating revenue and the lower limit for depeg is also rising.

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