Stablecoin: a token pegged to a stable value

Crypto Without the Volatility

A stablecoin is a cryptocurrency engineered to maintain a stable value, almost always pegged to the US dollar. The market leaders are USDT (Tether), USDC (Circle), DAI (MakerDAO), and FDUSD (First Digital). Stablecoins serve as the working currency of crypto—the medium of exchange for trades, the unit of denomination for prices, and the safe asset traders move into during volatile periods.

Three main designs exist. Fiat-collateralized stablecoins like USDT and USDC are backed by reserves of cash and short-term treasuries held by a centralized issuer; they are simple but require trust in the issuer. Crypto-collateralized stablecoins like DAI lock up volatile assets like ETH in overcollateralized vaults and mint stablecoins against them. Algorithmic stablecoins try to maintain the peg through supply-and-demand mechanics without full collateral backing—the Terra/UST collapse in 2022 made clear how dangerous this design can be.

Stablecoins are the bridge between traditional finance and crypto. Combined supply now sits well above $200 billion. They settle international transfers in minutes for cents, power most DeFi activity, and increasingly serve as digital dollars in countries with weak local currencies. Regulatory attention has grown in lockstep, with frameworks like the EU's MiCA and US stablecoin bills aiming to codify reserve and disclosure requirements.