What Is a Stablecoin

A stablecoin is a cryptocurrency engineered to keep its value stable, usually by pegging it to real-world assets like the US dollar or gold. Unlike the significant price swings of Bitcoin or Ethereum, stablecoins are designed to preserve stable value through either reserve backing or algorithmic controls.

Main Types of Stablecoins

• Fiat-Collateralized: Backed by tangible assets such as cash or Treasury bonds. Notable examples are USDT and USDC.
• Crypto-Collateralized: Secured by other cryptocurrencies, typically using over-collateralization to manage volatility—DAI is a prime example.
• Algorithmic Stablecoins: Maintain their peg through supply adjustments, but are higher risk. The collapse of TerraUSD is a prominent example.

Why Stablecoins Matter

Stablecoins make cross-border payments and rapid settlement easier, serving as a “safe haven” within the crypto ecosystem. In countries facing severe inflation, stablecoins have become vital tools for wealth preservation.

Current Risks and Concerns

Experts caution that regulatory gaps could spark massive redemption runs on stablecoins. In June 2025, the U.S. implemented the GENIUS Act, requiring stablecoins to maintain 1:1 reserves, undergo routine audits, and offer user protections. The Bank for International Settlements (BIS) has also warned that stablecoins may endanger national monetary sovereignty and financial stability.

Summary: Key Takeaways for Beginners

If you’re still asking, “What is a stablecoin?”—the answer is simple: they’re more stable crypto assets designed for easier payments and investment, but they aren’t risk-free. Their long-term growth will depend heavily on the strength of future regulation.