What is Stablecoin?
A cryptocurrency designed to maintain a stable value, typically pegged 1:1 to the US dollar.
Stablecoins are cryptocurrencies engineered to hold a constant value — usually $1.00. They combine the speed and programmability of crypto with the price stability of fiat currency.
Types of stablecoins:
| Type | Mechanism | Examples |
|---|---|---|
| Fiat-backed | 1:1 USD reserves | USDT, USDC, BUSD |
| Crypto-backed | Overcollateralised crypto | DAI |
| Algorithmic | Supply/demand algorithms | Terra (UST) — collapsed 2022 |
Why traders use stablecoins:
USDT vs. USDC:
USDT (Tether) dominates exchange volume but has historically faced questions about reserve auditing. USDC (Circle) is more transparent with regular attestations. For exchange trading, USDT has deeper liquidity. For long-term holding, USDC is generally considered lower counterparty risk.
Stablecoin risks:
No stablecoin is completely risk-free. USDT depegging events, USDC temporary depegging during bank runs (March 2023), and UST's complete collapse all demonstrate that "stable" is not guaranteed.