A stablecoin is a crypto token that tries to keep a steady price, usually one US dollar, sometimes another currency. Traders use them as dry powder. Remittance experiments use them as a faster dollar. Applications use them so users are not forced to think in ETH for every coffee-sized action.
None of that makes the token identical to a bank deposit. You are holding a claim or an algorithm — depending on the design — that lives on a chain with fees, addresses, and irreversible mistakes. “Stable” answers one question (price versus a reference) and ignores others (who can freeze you, what backs it, what happens in a panic).
The main designs, without a sales deck
Fiat-backed coins hold cash or securities with a custodian and issue tokens 1:1, in theory. You must trust the issuer’s reserves, the banks, the auditors’ scope, and the issuer’s ability to honour redemptions. Some issuers can freeze addresses. That is a feature for law enforcement and a risk if you needed censorship resistance.
Crypto-collateralised coins over-collateralise with other crypto assets and liquidate when prices fall. More on-chain, more market machinery, more ways for a crash to cascade. Algorithmic coins try to defend a peg with supply tricks. History has not been kind to the purely algorithmic ones. If you cannot explain the peg defence in a paragraph, do not bet the rent on it.
The names you will actually see
USDT is Tether’s token. USDC is Circle’s. Both are company IOUs: you are trusting reserves, banks, and a firm that can freeze an address. They are not the same token, and each of them exists on more than one chain. In March 2023 USDC traded below a dollar for a weekend because a slice of reserves sat at a bank that had just failed. The issuer said it would honour redemptions, and the market price came back. That episode is the product working in public, not a reason to treat the next wobble as impossible.
DAI, and the later Sky token USDS, are the crypto-collateral family: other crypto locked in contracts, liquidations when prices fall, governance that can change parameters. Different risks from a company IOU. Not a bank deposit, and not “no company” in every version of the design.
The purely algorithmic attempt most readers still mean is Terra’s UST, in May 2022. The peg defence was a sister token and a mint-and-burn story. It did not hold. People who needed a dollar had a melting token and a melting sister coin. That is why this page treats “the algorithm will handle it” as a claim you should be able to paraphrase, not as a comfort.
A statute can sit on top of all of this. The GENIUS Act is a US law about payment-stablecoin issuers. It is not a dollar in your pocket, and it is not a rule for every token with “USD” in the name on every chain. The GENIUS Act is a stablecoin statute is the dated version. This page is the product.
What “depeg” actually feels like
A depeg is when the market price leaves the target. Sometimes it is a few cents in thin liquidity. Sometimes it is a run. If you needed one dollar of purchasing power and you have ninety cents of a token that may be frozen or illiquid, the word “stable” will feel like a joke. Read how redemptions work for the specific coin, not for the category.
On-chain transfers are fast; getting out to a bank can be slower and permissioned.
Yield on a stablecoin is never free: someone is taking risk, including you.
A dollar token on the wrong network is still the wrong network.
Practical habits
Know which coin you hold — the contract, not the ticker. USDT and USDC are not interchangeable in every app. Check whether your venue supports the version you have. For larger sums, think about issuer risk the way you would think about a money-market fund you cannot name.
Why traders like them anyway
Moving between bitcoin and ether on a venue often means going through a dollar token so you are not forced to time two volatile legs at once. Applications price fees and collateral in a unit people can think in. That demand is real. It is also how a single issuer or a single peg defence becomes infrastructure — which is another way of saying: concentrated risk with a friendly name.
If a tutorial tells you to park funds in a “savings” stablecoin pool, you are usually lending or providing liquidity. The return is compensation for that. Read the contract’s ability to pause. Read whether your coins are mixed with someone else’s leverage.
Getting in and out
Minting and redeeming with the issuer, when you are allowed to, is a different path from selling the token on an exchange to someone else. In a panic those paths diverge: the market price can leave $1 even if the issuer still says it will honour $1 to eligible customers next week. Eligibility is doing a lot of work in that sentence — KYC, minimums, banking hours, jurisdictions.
For a reader, the practical move is modest: know which path you actually have. If your only exit is a trading pair on one venue, you have venue risk plus token risk, not a digital dollar in your pocket.
This is not advice to hold, avoid, or use any stablecoin. It is a request that you treat “$1” on a screen as a statement about a product. Products have fine print. Blockchains will execute the fine print with perfect loyalty.
