Crypto glossary

Stablecoin

A stablecoin is a crypto asset designed to keep a stable value relative to a reference such as the US dollar, usually by holding reserves, posting collateral or using an algorithm.

Auf Deutsch lesen

The main types

Fiat-backed stablecoins, such as USDT and USDC, are issued by a company that holds reserves like cash and short-term government bonds. One token is meant to be redeemable for one dollar through the issuer, though often only for verified customers.

Crypto-collateralized stablecoins, such as DAI, are created by locking more crypto than the value of the stablecoins issued, for example 150 dollars of ETH for 100 dollars of stablecoins, and liquidating positions if the collateral falls too far. Algorithmic stablecoins try to hold their peg mainly through supply adjustments and incentives, with little or no outside backing.

What they are used for

Stablecoins are the main unit of account in crypto trading, the base of most DeFi lending and liquidity pools, and a way to move dollar value across borders around the clock. They let people leave volatile assets without converting back to a bank account.

Where the stability can fail

A fiat-backed stablecoin is only as good as its reserves and the issuer's ability to honor redemptions. Issuers can also freeze tokens at specific addresses. In March 2023, USDC briefly fell well below one dollar after its issuer disclosed that part of its reserves was held at the failed Silicon Valley Bank.

Crypto-backed stablecoins depend on their liquidation systems working during sharp market drops. Algorithmic designs have the worst record: in May 2022, TerraUSD (UST) lost its peg and collapsed, wiping out tens of billions of dollars in value along with its sister token LUNA.

Questions to ask

What backs it, and how is that verified? Who can redeem, and how fast? Can the issuer freeze funds? How did it behave during past stress? In the EU, the MiCA regulation has set rules for stablecoin issuers since 2024, which affects which stablecoins some platforms offer there.

Ask Coach about it

Coach is the AI on AtenaCrypto. It explains crypto with live market data, in plain words.

How do fiat-backed and crypto-backed stablecoins keep their peg during market stress?Ask Coach →

Frequently asked questions

Are stablecoins safe?

They are designed to be less volatile than other crypto, not risk-free. Reserve quality, issuer solvency, freezes and depegs are the main risks.

Do stablecoins pay interest?

The token itself usually does not. Yields offered on stablecoins come from lending or DeFi platforms and carry their risks.

What happens if a stablecoin issuer fails?

Holders depend on the reserves and on legal claims, which can take a long time or recover less than full value.

Learn it step by step

AC Learning explains these ideas in interactive lessons — the first eight sections are free.

Open AC Learning → Create a free account

All glossary terms · Educational reference only — not investment, legal, tax or financial advice.