What Are Stablecoins? USDT, USDC and How the Peg Holds
Stablecoins aim to hold a steady value, usually one US dollar. Here is how the main types keep their peg — and where each can wobble.
Not financial advice. This article is for informational purposes only. Cryptocurrency is volatile and high-risk — do your own research.
A stablecoin is a cryptocurrency designed to hold a steady value, almost always pegged to a national currency such as the US dollar. They are the plumbing of crypto: traders park funds in them, DeFi apps price loans in them, and people use them to move dollars across borders without a bank.
The main types
- Fiat-backed (like USDT and USDC) hold reserves — cash and short-term government debt — meant to back each token one-for-one. The peg relies on trusting that the reserves exist and can be redeemed.
- Crypto-collateralised stablecoins are backed by other crypto assets, over-collateralised to absorb price swings.
- Algorithmic stablecoins try to hold the peg with supply-and-demand mechanisms rather than reserves — an approach that has failed dramatically in the past.
How the peg holds
For reserve-backed coins, the peg holds through redemption: if a token trades below a dollar, arbitragers can buy it cheap and redeem it for a dollar, pushing the price back up. That only works if redemption is genuinely available and the reserves are real, which is why transparency and audits matter.
What to watch
Stablecoins are not risk-free. Reserve quality, regulatory status and redemption access all matter, and “stable” is a goal, not a guarantee. Follow the stablecoins we track on our stablecoins hub. Not financial advice.