Stablecoins are cryptocurrencies pegged to fiat currencies or physical assets, serving as core tools in crypto trading and asset storage due to their price stability.
Depending on collateral types, stablecoins fall into four categories: fiat-collateralized, crypto-collateralized, algorithmic, and commodity-backed—each with unique risks and use cases.
Despite their emphasis on stability and safety, historical events have proven that factors like insufficient reserves, depegging, and regulatory changes can still pose systemic risks.
Stablecoins are a unique hybrid of fiat currencies and cryptocurrencies, combining the best traits of both. Their emergence revolutionized crypto trading, with three stablecoins now ranking among the top 10 cryptocurrencies by market cap.
But what makes stablecoins so pivotal? This article explores their definition, uses, types, and inherent risks.
What Are Stablecoins?
Stablecoins (Stablecoin) are cryptocurrencies pegged to reserve assets like fiat currencies or gold. Unlike volatile cryptocurrencies (e.g., Bitcoin, Ether), stablecoins maintain minimal price fluctuations, making them ideal for daily transactions and value storage.
The most prominent stablecoins are USD-pegged stablecoins, colloquially called "U" in crypto circles (inspired by USD). Popular examples include USDT, USDC, and DAI.
Uses of Stablecoins
Acting as a bridge between traditional finance and crypto, stablecoins simplify valuation and unlock diverse functionalities:
1. Pricing Unit for Cryptocurrencies
Pre-stablecoins, traders used BTC or ETH as benchmarks ("coin-based pricing"). USD stablecoins introduced intuitive "U-based pricing," aligning with global dollar standards.
2. Digital Value Storage
From fiat-pegged to commodity-backed variants (e.g., gold, oil), stablecoins enable portable, secure asset digitization—bypassing physical storage hassles.
3. Everyday Transactions
Countries like Switzerland now accept stablecoins (e.g., USDT) at major retailers like McDonald’s, while startups use them for payroll.
Types of Stablecoins
Stablecoins diversify across four collateral models:
1. Fiat-Collateralized Stablecoins
Backed by fiat reserves (e.g., USD) and regulated centrally. Examples:
- USDT: Tether’s flagship, 1:1 USD-backed (cash/bonds).
- USDC: Coinbase/Circle’s NYDFS-regulated stablecoin.
- PYUSD: PayPal’s 2023 entrant, a tech giant’s first.
- BUSD: Binance/Paxos’s now-winding-down stablecoin (SEC scrutiny).
💡 BUSD Alert: SEC deemed it an "unregistered security" in 2023. Binance shifted focus to TUSD/FDUSD alternatives.
2. Crypto-Collateralized Stablecoins
Overcollateralized with crypto assets (150%-200% backing) to counter volatility:
- DAI: MakerDAO’s Ethereum-based stablecoin, now blending crypto with Real World Assets (RWA) like U.S. Treasuries.
- Djed: Cardano’s 400%-800% overcollateralized stablecoin (ADA-backed).
3. Algorithmic Stablecoins
Highest-risk category, relying on smart contracts to adjust supply:
- UST: Terra’s infamous 2022 collapse (death spiral from Luna depegging).
- USDD: Tron DAO’s algorithmic variant.
4. Commodity-Backed Stablecoins
Pegged to physical assets (e.g., gold):
- XAUT: Tether’s 1:1 gold-backed token (Swiss vaults).
- PAXG: Paxos’s NYDFS-regulated gold stablecoin.
Stablecoin Rankings (2025)
Per CoinGecko, top stablecoins by market cap:
- USDT (~70% dominance)
- USDC
- DAI (sole crypto-collateralized top 5)
- TUSD / FDUSD (Binance-affiliated)
👉 Explore real-time rankings here
Risks of Stablecoins
1. Insufficient Reserves
Even USDT/USDC face audit gaps—potential runs if reserves can’t cover redemptions (e.g., Circle’s $3.3B SVB exposure).
2. Depegging Events
- UST: Algorithmic failure (2022).
- USDC: Briefly fell to $0.87 during SVB collapse.
3. Regulatory Crackdowns
BUSD’s SEC ban highlights compliance double-edged sword. Circle now diversifies into Singapore/Japan.
4. Over-Centralization
Issuers (e.g., Tether) can freeze wallets if suspected of illicit activity—even via indirect mixer contacts.
How to Buy Stablecoins? (USDT Example)
Local Exchange (TWD)
- Deposit TWD to ACE/MAX/BitoPro.
- Trade via USDT/TWD pair (limit/market orders).
International Exchange
- Binance: Buy via credit card (3% fees) or C2C P2P trading.
FAQ
Q1: Are stablecoins safer than Bitcoin?
A: Generally yes (lower volatility), but reserve/algorithm risks exist.
Q2: Can I earn interest on stablecoins?
A: Yes—via lending/DeFi platforms (e.g., 5%-10% APY).
Q3: Which stablecoin is most regulated?
A: USDC (U.S.) and BUSD (formerly NYDFS).
Conclusion
Stablecoins are indispensable yet imperfect tools. Diversify holdings (USDT/USDC/DAI) and monitor reserve reports. For passive income, explore yield strategies—but always DYOR (Do Your Own Research).
👉 Start trading stablecoins securely today