A stablecoin is a cryptocurrency designed to maintain a stable value relative to a reference asset — typically the US dollar (1 USDT = $1), sometimes the euro, gold, or a currency basket.
3 types of stablecoins:
- Fiat-backed: USDT (Tether), USDC (Circle), DAI (partially). For each token issued, the issuer holds $1 in reserves (cash, T-bills). The dominant model — about 90% of the stablecoin market.
- Crypto-backed (over-collateralized): DAI generates its tokens against 150% ETH deposit. Decentralized but capital-inefficient.
- Algorithmic: adjust supply based on demand to maintain peg. Disastrous history: UST/Luna collapse in May 2022 (-99%, $60B wiped), proving this model is unstable.
Leading market caps (mid-2026):
- USDT (Tether): ~$140B
- USDC (Circle): ~$50B
- DAI: ~$5B
Use cases:
- Volatility refuge: exit a crypto trade into USDT rather than fiat (less friction, lower fees)
- 24/7 trading: nearly all crypto/crypto pairs are quoted against USDT/USDC
- Cross-border payments: USDT bypasses slow/expensive banking systems in some countries
- DeFi yield farming: lend your USDC on Aave or Compound for 4-6%/year (vs 0.5% in bank)
Risks: reserve opacity (Tether long refused audits), regulatory blocking risk (US, MiCA), "depeg" risk (USDC fell to $0.87 for 48h in March 2023 during Silicon Valley Bank failure). The European MiCA regulation effective 2024-2025 now mandates quarterly audits and 100% liquid reserves for EU issuers.