Depeg Risk

In the case of redeemable tokens, usually stablecoins, liquid staking tokens (LSTs), and wrapped tokens, a depegging event is a major risk. A depeg event is when a pegged asset's price becomes substantially detached from the peg price because the reserves backing the tokens have been drained.

This can happen due to various factors, including a smart contract hack:

• e.g. LST vault is drained, counterparty insolvency

• e.g. Concerns about the collateral backing of the issuer of USDC in March 2023 (article)

Since pegged tokens are typically allowed a much higher LTV due to K-Lend's eMode mechanism, it is crucial that any events that could lead to a depeg be actively monitored.