Stablecoins are cryptocurrencies designed to hold a stable price, usually pegged to 1 US dollar. This makes them useful as a medium for trading crypto, parking funds between trades, or transferring money across borders quickly.
How They Work
| Type | Principle | Examples |
|---|---|---|
| Backed by cash and bonds | The issuer holds cash and short-term US government bonds equal to the number of coins issued | USDT, USDC |
| Backed by crypto | Crypto is locked as collateral worth more than the value of the coins issued | DAI / USDS |
| Algorithmic | Code-based mechanisms control supply instead of collateral | TerraUSD (UST), which collapsed in 2022 |
USDT vs USDC
- Tether (USDT) is the largest and the most traded in the world, especially in Asia. The issuer is the company Tether.
- USD Coin (USDC) is issued by Circle, a US company, and emphasizes transparency and regulatory compliance.
Both publish reports on the assets backing them periodically. Users should follow these reports.
Why Stablecoins Matter to the Market
- They are the main liquidity of the crypto market. A rise in the supply of stablecoins is often seen as a sign that there is money ready to enter the market.
- Issuers hold large amounts of US government bonds, linking the crypto world with traditional financial markets.
- In 2025, the US enacted a law regulating stablecoins (the GENIUS Act), requiring issuers to hold full backing assets and disclose information.
Risks That Remain
- Losing the peg (De-peg): for example, USDC temporarily fell below 1 dollar in March 2023 when part of its reserves was stuck in Silicon Valley Bank, which collapsed.
- Issuer risk: if the issuer mismanages funds or is ordered to suspend operations by authorities.
- Platform risk: stablecoins deposited on a platform are not protected like bank deposits.
- Algorithmic stablecoins have a history of severe collapses and should be avoided if you do not understand the mechanism.
"Stable" means the price is designed to stay steady. It does not mean there is no risk.
For education only, not investment advice. Figures change over time, so check official sources before making decisions.