A stablecoin is designed to trade at a fixed value against a reference currency. Nothing about the token itself enforces that, so the peg depends entirely on a mechanism operating around it.
Redemption at par is the primary anchor
For reserve-backed designs, the issuer promises to exchange one token for one unit of the reference currency on demand from eligible parties.
That promise creates an arbitrage. If the token trades below par, buying it cheaply and redeeming it at par is profitable, which produces buying pressure that closes the gap.
The mechanism works only as long as redemption is genuinely available and fast. Where access is restricted to large counterparties, the arbitrage can be slow to appear.
Reserve composition determines the failure mode
Reserves held entirely in cash and short-dated government instruments can be liquidated quickly at predictable prices, which supports redemption under stress.
Reserves containing longer or less liquid assets may be fully valued on paper and still be difficult to convert at short notice, which is a timing problem rather than a solvency one.
Depegging episodes have generally involved doubt about whether reserves could be accessed rather than proof that they did not exist, which is why disclosure and attestation practices attract attention.
Overcollateralised designs work differently
Some stablecoins are issued against crypto collateral deposited in excess of the amount created, with automatic liquidation if the collateral value falls too far.
The excess exists because the collateral is volatile, and the buffer determines how large a price fall the system can absorb before positions are closed.
The weakness is correlation. A sharp market-wide fall triggers many liquidations at once, into a market where buyers are scarce, which can push collateral prices down further.
Algorithmic designs depend on confidence
Purely algorithmic models adjust supply or use a paired token to absorb pressure, without holding external assets against the coin.
These systems function while participants believe they will function, because the corrective action requires someone to buy the paired asset voluntarily.
When that belief fails, the mechanism accelerates the decline rather than arresting it, which is the pattern seen in the most severe historical failures of the category.
Why small deviations are normal
Prices on exchanges reflect local supply and demand, so brief deviations of a fraction of a percent occur constantly and are closed by arbitrage.
The distinction that matters is between a deviation that closes as arbitrageurs act and one that persists, since persistence indicates the correcting mechanism is not operating.
Regulatory treatment of reserve requirements and redemption rights differs by jurisdiction and continues to develop, which affects how much protection any particular design carries.