Opinion by: Jean Rausis, co-founder of SmarDex
Stablecoins are supposed to be the bedrock of decentralized finance (DeFi), but that axiom has calcified into dogma. The industry’s obsession with the “perfect peg” has become a dangerous fixation that ignores basic mathematical reality.
Just as stubborn regimes eventually crumble, rigid crypto assets are destined to fail. We’ve seen this with UST, NuBits and BitUSD. Every major collapse began with the exact same fracture: a “stable” asset that could not handle the slightest deviation.
Strict adherence to a 1:1 peg is a structural flaw, not a feature. Instead of clinging to this brittle ideal, we need to embrace systems that can handle depeggings and reward users for stepping in to fix them, rather than triggering a race for the exits.
The fragility of the perfect peg
It was hard to miss what went down in November 2025. The Ethereum-based DeFi protocol Balancer fell victim to a hack that saw $128 million drained from its V2 Composable Stable Pools. Assets featured in these pools suffered immediately, most notably xUSD, a synthetic dollar issued by Stream Finance that is widely used in lending platforms.
One of the many dollar-pegged stablecoins, xUSD didn’t only lose its peg; its price plunged from $1 to $0.15 in three days, triggering margin calls and forced liquidations everywhere it served as collateral. It has continued to tumble. Stream Finance’s separate disclosure that it had incurred a $93-million loss tied to an “external fund manager’s mistake” did not help matters.
Cascading events like this have happened too many times to count. While there were clearly multiple reasons for xUSD’s implosion, the fact that liquidity providers had no incentive to fight for the peg and restore balance was a significant factor. Rational actors will always choose rational courses of action. In this case, that meant running away. The resulting death spiral inevitably dragged various vaults, like those on Morpho and Euler, into a liquidity crisis.
The glaring flaw of stablecoins, synthetic or otherwise, is that stability is currently defined inflexibly. If traditional finance relied on mechanisms as brittle as strict peg maintenance, it would be powerless to incentivize savings.
Flexi-pegs are the answer
When stablecoins fail to maintain their pegs, trust erodes, assets collapse and contagion spreads.
Rigid pegs, like rigid interest rates, create a binary trust dynamic: full confidence or total panic, with nothing in between. Paradoxically, suppressing even the slightest deviation from a peg kills a system’s ability to self-heal. Moreover, stablecoin systems achieve real stability only when they can adapt quickly, respond to unfolding crises and lock in equilibrium as conditions shift.
Related: DeFi must go back to its P2P roots to gain mass adoption
This is the core concept behind a flexi-peg system, wherein modest deviation is considered normal, and volatility itself is harnessed to promote balance. Incentives are central to this proposition; yield incentives motivate users, rather than protocol managers, to lead recovery efforts responsively.
This is not an abandonment of stability, but rather a fresh approach to building it correctly. No sensible stablecoin proponent wishes to see constant de-pegs or plummeting values. It is about aligning incentives to stabilize prices, rewarding liquidity and risk-taking during turbulent periods, and weathering stress events through predictable, market-driven corrections.
Systems that define stability as perfection simply cannot survive imperfection. A reimagining of the mechanisms regulating stablecoin pegs is long overdue. We must move from static stability to dynamic stability.
Incentives create protocol integrity
How many depegging events need to occur before we acknowledge that algorithmic incentives, not moral restraint or heroism, are what provide stability? Protocols with built-in recovery logic can govern themselves predictably, favoring elastic stability over the hidebound approach we see today.
The growth of crypto lending and the accompanying use of stablecoins make this attitudinal shift a necessity rather than an option. Lessons from history are not limited to crypto; Rome fell, in part, because it debased its currency and destroyed the economic trust that held its empire together.
DeFi risks the same fate every time its blind reliance on maintaining stablecoin pegs fails to protect it from a black swan event.
Future-proofing stablecoins
For DeFi to maximize its potential, stablecoins must be built upon shockproof, self-governing systems that bend without breaking. Protocols that use code-enforced incentives to reward the restoration of balance must come to the fore. With the popularization of innovative flexi-pegged stablecoins, the industry will be future-proofed for generations to come.
Opinion by Jean Rausis, co-founder of SmarDex.
This opinion article presents the contributor’s expert view, and it may not reflect the views of Cointelegraph.com. This content has undergone editorial review to ensure clarity and relevance. Cointelegraph remains committed to transparent reporting and upholding the highest standards of journalism. Readers are encouraged to conduct their own research before taking any actions related to the company.
This opinion article presents the contributor’s expert view and it may not reflect the views of Cointelegraph.com. This content has undergone editorial review to ensure clarity and relevance, Cointelegraph remains committed to transparent reporting and upholding the highest standards of journalism. Readers are encouraged to conduct their own research before taking any actions related to the company.
