A Complete Introduction to Stablecoins in 2025: Understand the 4 Types at Once

The stablecoin market has exploded. As of now, the total market cap of stablecoins across the entire network has surpassed $212 billion, with about 200 types of stablecoins active on major platforms. What exactly is this thing? Why is it so popular?

What Exactly Is a Stablecoin

Simply put: it’s a cryptocurrency that doesn’t fluctuate much in price. They’re pegged to relatively stable assets like the US dollar, euro, or gold, giving you a safe haven while messing around in the crypto world. Before stablecoins, traders who wanted to stop losses had to convert to dollars—slow and expensive. With stablecoins, you can directly shift into them to protect your assets.

4 Types of Stablecoins—Each with Their Own Pitfalls

1️⃣ Fiat-Collateralized (Most Common)

Examples: USDT, USDC, RLUSD

The logic is simple: you buy 1 USDT, and the company locks 1 US dollar for you in a bank. The risk is also obvious: if the company runs away or the reserves are insufficient, the stablecoin collapses.

Data: USDT market cap is over $140 billion, USDC is $42 billion. These two account for the majority of the stablecoin market.

2️⃣ Commodity-Collateralized (Rare)

Examples: PAX Gold, Tether Gold

Each token = 1 troy ounce of real gold. Seems safe, but redeeming actual gold bars requires a ton of procedures, and the fluctuation in gold prices can affect stability.

3️⃣ Crypto-Collateralized (Techies’ Favorite)

Examples: DAI, sUSD

Other coins (like ETH) are locked up as collateral to mint stablecoins. The catch: to generate $100 of stablecoins, you might have to lock up $150 worth of ETH (over-collateralization). If the market crashes, you risk liquidation.

4️⃣ Algorithmic (Basically Dead Now)

Examples: UST (defunct), Ampleforth

Price stability is maintained purely by algorithms adjusting supply—no real asset backing. Sounds cool, but the 2022 UST crash proved this model is too fragile.

What Can Stablecoins Do

✅ Crypto-to-crypto trading: Swap coins quickly on exchanges without needing to cash out to a bank
✅ International transfers: Instant arrival, low fees, no bank drama
✅ DeFi yield farming: Use as collateral, for lending, or to provide liquidity
✅ Emergency hedging: Quickly exit to safety when the market crashes
✅ Earn interest: Some platforms let you earn yield on stablecoins (3%-10% APY)

Quick Reference Table of Popular Stablecoins

Don’t Ignore These Risks

⚠️ Regulatory Crackdowns: Central banks worldwide are watching stablecoins; new regulations could hit anytime
⚠️ Technical Failures: Smart contract bugs or hacks could bring the whole thing down
⚠️ Fake Reserves: Companies may claim 100% reserves, but reality might fall short
⚠️ Depegging: During market panic, stablecoins can drop below $1

In a Nutshell

Stablecoins are the crypto world’s safe haven; USDT and USDC are the most reliable. Other types offer innovation but come with their own pitfalls—know the specific risks before going deep.