Understanding Stablecoins

Easy 12 minutes

What Are Stablecoins?

Stablecoins are cryptocurrencies designed to maintain a stable value, usually pegged 1:1 to the US Dollar. They're essential for trading, DeFi, and avoiding volatility.

Top Stablecoins Compared

Stablecoin	Issuer	Backing	Market Cap
USDT (Tether)	Tether	Cash + equivalents	$90B+
USDC	Circle	Cash + T-bills	$25B+
DAI	MakerDAO	Crypto collateral	$5B+

Types of Stablecoins

Fiat-Backed (USDC, USDT)

Backed by real dollars in bank accounts
Centralized - company controls it
Most stable and widely used

Crypto-Backed (DAI)

Backed by locked cryptocurrency
Decentralized - no company controls it
Over-collateralized for safety

Algorithmic (High Risk!)

Use algorithms to maintain peg
Often fail spectacularly (see: UST collapse)
Generally avoid these

Algorithmic Stablecoin Warning

The UST/Terra collapse in 2022 wiped out $40 billion. Algorithmic stablecoins are extremely risky and can lose their peg catastrophically.

Which Stablecoin to Use?

Trading: USDT (most liquid, most pairs)
US users: USDC (regulated, transparent)
DeFi purists: DAI (decentralized)
General use: USDC or USDT both fine

Diversify Your Stablecoins

Don't keep all your stables in one coin. Even stablecoins have risks (regulatory, company failure, de-peg). Split between 2-3 major stablecoins.

Use Cases for Stablecoins

Trading pairs (BTC/USDT)
Taking profits without selling to fiat
Earning yield in DeFi
Cross-border payments
Hedging against volatility