A stablecoin is a cryptocurrency designed to maintain a stable value, usually pegged to USD. Stablecoins are the dollar layer of crypto — they let you hold or transact in dollar-denominated value on a blockchain without exposure to crypto-asset volatility. Total stablecoin supply hit $190B in 2026.
The main types
Fully-reserved fiat-backed
The issuer holds USD (or short-dated Treasuries) one-for-one with the stablecoin supply. Each issued coin is backed by a real dollar somewhere. Examples: USDC (Circle), USDP (Paxos), TUSD (Trust Company of America). USDT (Tether) describes itself this way; reserve composition has been less transparent historically though attestations have improved.
Risk: issuer fraud, custodian failure, regulatory action against the issuer. USDC briefly de-pegged in March 2023 when its custodian Silicon Valley Bank failed; recovered within days when bank rescue was confirmed.
Collateral-backed (on-chain)
The stablecoin is minted against on-chain collateral — typically ETH or other crypto assets — held in over-collateralised positions. The canonical example is DAI (MakerDAO/Sky). To mint $100 of DAI, you lock up roughly $150 of ETH; if your ETH value falls toward $110, your position can be liquidated to redeem the DAI.
Risk: extreme crypto price drawdowns can cause cascading liquidations; smart-contract risk in the collateralisation mechanism.
Algorithmic
The peg is maintained by automated buy/sell mechanisms with no full collateral backing. Terra UST was the canonical example until its catastrophic depeg in May 2022 ($60B+ of value destroyed in 3 days). No major algorithmic stablecoin maintains a stable USD peg today; the design pattern is broadly considered failed.
Why people use them
- Trading. Most crypto trading pairs are denominated in USDT or USDC. You exit a trade into stablecoins, not back to fiat.
- Remittances. Send dollar-denominated value internationally for fractions of a cent, in seconds. Tron USDT is doing real cross-border work in emerging markets.
- On-chain savings. DeFi protocols offer interest on stablecoin deposits — 4–6% APY on USDC in Aave is common, with smart-contract risk.
- Avoiding local currency risk. Useful in jurisdictions with high inflation or capital controls (Argentina, Turkey, Nigeria).
The risks you should think about
- De-pegging. A stablecoin trading below $1 is a sign of trouble. Brief depegs (0.1–0.5%) are common and recover; sustained depegs are dangerous.
- Issuer concentration. Tether alone is 62% of stablecoin supply. A Tether confidence event would be the largest single risk to crypto liquidity.
- Regulatory action. Stablecoin issuance is heavily regulated under MiCA in the EU. US legislation has been “imminent” for years.
- Custodian failure. For fully-reserved stables, the reserves sit at a bank. The 2023 SVB episode is the cautionary tale.
- Smart-contract risk in DeFi. Depositing stablecoins in lending protocols exposes you to additional risk on top of the stablecoin’s own.
Stablecoins are not the same risk profile as USD
Holding $10k in a US savings account: insured up to $250k by FDIC, near-zero risk of nominal loss, US-government-grade reliability.
Holding $10k of USDT in your wallet: depends on Tether’s reserves, Tether’s legal status, and the broader stablecoin regulatory environment. Risk is real and non-trivial, especially at the long-end of the supply curve.
Stablecoins are stable compared to other crypto, not stable in absolute terms.
Picking a stablecoin
- For trading volume: USDT (most pairs on most exchanges)
- For US-jurisdiction comfort: USDC (regulated, audited monthly)
- For decentralisation: DAI (on-chain collateral, decentralised governance)
- For EU compliance: EURC, USDC (MiCA-compliant issuance)