Study warns stablecoins can depeg despite full reserves

Stablecoins can depeg even when reserves are sufficient if hit by an intense negative market narrative, according to a research report from Renmin University of China’s Institute of Fintech published in the Journal of International Money and Finance. The report said it built a market model with heterogeneous investors using large language models, or LLMs, to analyze the stablecoin depegging process. It found that under low-intensity information shocks, arbitrage mechanisms maintained the peg, while once shock intensity crossed a threshold, negative investor intervention intensified and triggered a chain of fear, worsening liquidity, retail selling, and arbitrageurs pulling back. Under the highest level-five shock, the maximum price deviation widened by about 35 times versus scenarios below the threshold, the report said. The researchers called the chain reaction "cognitive depegging" and added that, beyond reserve-related doubts, sufficiently strong regulatory actions, technical or security incidents, key-person risk, and macroeconomic fear could produce similar outcomes.