What is a stablecoin?
Almost every price you see in crypto is a price in stablecoins. They are the cash of the system: what you sell into when you exit a trade, what quotes are written in, what moves between exchanges in minutes. They are also the part of the system that beginners assume is risk-free, and the history of the last few years says otherwise.
How does a stablecoin stay at one dollar?
Three designs, with very different guarantees.
| Design | How the peg is held | What can break it |
|---|---|---|
| Fiat-backed | Issuer holds dollars and short-term government debt for every token; redeems 1:1 | Reserves turn out to be worse than claimed; banking partner fails; issuer freezes addresses |
| Crypto-collateralised | Each token backed by more than $1 of crypto locked in a contract, liquidated if it falls too far | A crash so fast the collateral cannot be liquidated in time |
| Algorithmic | Supply expands and contracts to push price back to $1; little or no full reserve | Confidence; once holders run, the mechanism accelerates the collapse |
The largest stablecoins by market value are fiat-backed. The best-known algorithmic design, TerraUSD, lost its peg in May 2022 and fell to a small fraction of a dollar within days, taking its sister token with it — a reminder that "stable" describes the goal, not a guarantee.
Why do traders hold stablecoins instead of dollars?
Because they move like crypto and settle like crypto. A dollar wire takes a day and closes on weekends; a stablecoin transfer clears in minutes, at any hour, to any exchange or wallet. Most trading pairs quote against a stablecoin, so selling a coin "to cash" on an exchange usually means selling it for USDT or USDC. Holding the proceeds as a stablecoin keeps them ready for the next trade without another conversion and without the delay and fees of moving fiat in and out.
The cost is that "cash" now carries issuer risk, network risk and the small daily wobble of a peg. On a quiet day a major stablecoin trades within a few hundredths of a cent of a dollar; during stress it can trade at a discount for hours.
What are the risks that are easy to forget?
A depeg — the token trading below a dollar — is the obvious one, and for a fiat-backed coin it usually reflects doubt about the reserves or the issuer's banks rather than the token itself. Less obvious: issuers can freeze addresses when ordered to; the same ticker exists on many networks and sending it on the wrong one can lose it; and yield offered on stablecoins is never free money — someone is borrowing your dollars, and the yield is the price of the risk that they do not return them. If a "stable" return is far above what government debt pays, the difference is the risk you are taking, whether or not it is written down.
Which stablecoin should a beginner use?
The one your exchange uses as its main quote currency, for trading; and, for anything held for longer, one that is fiat-backed, large, widely redeemable and publishes regular attestations of its reserves. Spread holdings across more than one if the amount is meaningful, keep only trading balances on the exchange, and never treat a stablecoin balance as identical to a bank balance. It is a very good tool that is not a dollar.
FAQ
Are stablecoins safe? Safer than volatile crypto, less safe than a dollar in an insured bank account. Fiat-backed coins with audited reserves have held their peg through several crises; algorithmic designs have failed. The risk is the issuer and the network, not price swings.
What is a depeg? When a stablecoin trades away from its target value, usually below $1. Small, brief depegs happen under stress; a sustained one signals doubt about the backing.
Why are crypto prices quoted in USDT or USDC? Because exchanges can move stablecoins on-chain instantly and around the clock, which dollars in a bank cannot do. The stablecoin acts as the cash leg of the trade.
Can a stablecoin be frozen? Fiat-backed issuers can and do freeze specific addresses when required by law or when funds are linked to theft. That is part of what makes them acceptable to banks and regulators.
See how the market is built around the stablecoin leg
Venues, quote currencies, order books and where the dollar actually enters and leaves.
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The whole slide course — ten free PDF parts, 328 pages.
Stablecoins are the quiet half of every pair on the live prices page. Withdrawing safely covers the network mistake that costs the most, and self-custody explains why a stablecoin in your own wallet and one on an exchange are different assets.