Stablecoins 101: The Boring Coins That Run Crypto

Stablecoins are the boring coins that secretly run crypto. If you’ve ever sold a token and your app showed USDT or USDC instead of dollars, congrats—you’ve already used stablecoins. They’re basically crypto’s “pause button”: a way to stay on-chain without riding every candle like a theme park ride.

This is Stablecoins 101: what stablecoins are, how they try to stay at $1, why traders and DeFi users live in them, and the risks people conveniently forget to mention until something explodes.

What is a stablecoin (in human language)?

A stablecoin is a crypto token designed to track a stable value—usually $1 USD.

Think of it like:

• A casino chip you can use across the entire casino (CEXs, DEXs, DeFi)

The key idea: you can move, swap, lend, borrow, and farm yield without constantly converting back to your bank.

If you’re still getting your bearings, read our beginner primers:

• What is DeFi? → /blog/what-is-defi

Why stablecoins matter (a.k.a. why everything is priced in them)

Crypto is global, 24/7, and allergic to slow bank rails. Stablecoins became the default “money layer” because they’re:

• Fast: send in minutes, not “3–5 business days”

Most traders don’t think in “1 SOL equals 0.0-whatever BTC.” They think in dollars. Stablecoins let the crypto economy use “dollars” without needing your actual bank to participate in every trade.

Stablecoins are not all the same

People say “stablecoin” like it’s one thing. It’s not. There are different types, and the risks are wildly different.

1) Fiat-backed stablecoins (the mainstream ones)

These are backed (in theory) by real-world assets like cash and U.S. Treasury bills.

Examples:

• USDC (Circle)

How it works (simplified):

• You give the issuer $1

If the issuer is legit and liquid, the price stays near $1 because arbitrage traders step in.

2) Crypto-collateralized stablecoins (on-chain backed)

These are backed by crypto locked in smart contracts, usually overcollateralized.

Example:

• DAI (historically the iconic one)

How it works: you lock, say, $150 worth of ETH to mint $100 worth of stablecoin. If ETH dumps too hard, the system liquidates your collateral to keep the stablecoin solvent.

Pros:

• More “on-chain native”

Cons:

• Can get messy in extreme volatility

3) Algorithmic stablecoins (the “trust me bro” category)

These try to maintain a peg using incentives, mint/burn mechanics, and vibes.

Sometimes they work… until they don’t. The crypto graveyard has receipts.

If you remember one rule from this article, make it this:

How does a stablecoin “stay at $1”?

Here’s the magic trick: it’s not magic—it’s arbitrage.

Let’s say USDC is trading at $1.02 on an exchange.

• Arbitrageur mints USDC for $1 with the issuer

If USDC is trading at $0.98:

• Arbitrageur buys cheap USDC

This only works well if:

• Redemption/minting is functioning

So yes, “stable” is a process, not a guarantee.

USDT vs USDC: what’s the difference?

USDT (Tether) and USDC (Circle) are the two main characters.

USDT (Tether)

• Most used stablecoin in crypto (especially internationally)

USDC (Circle)

• Often seen as more regulated / transparent

The vibe:

• USDT is the street dollar: everywhere, extremely liquid

Neither is “perfect.” They’re tradeoffs.

Where stablecoins are used (aka why DeFi runs on them)

Stablecoins are the default unit of account in DeFi. Common uses:

Trading pairs

On many DEXs, the biggest pools are token/USDC or token/USDT. Why?

• Easier pricing

If you’re learning trading basics, our guide helps you not get cooked by candles:

• /blog/how-to-read-crypto-charts

Lending and borrowing

Stablecoins are the #1 thing people lend/borrow in DeFi:

• Lend stablecoins → earn yield

Payroll and payments

More teams pay contributors in stablecoins because:

• Everyone can receive them

“Risk-off” parking

When you’re done gambling on altcoins for the day, stablecoins are where you park funds without leaving crypto.

The stablecoin trilemma: pick your poison

Every stablecoin tries to balance three things:

1) Stability (stays near $1)

2) Decentralization (not controlled by one entity)

3) Capital efficiency (doesn’t require $150 to make $100)

Most coins can’t max all three. So they choose:

• Highly stable + efficient → usually centralized (fiat-backed)

“Depeg” explained (why people panic at $0.99)

A depeg is when a stablecoin drifts away from its target price.

Some depegs are tiny and temporary (market friction, liquidity issues). Others are “this is fine” dog in a burning room.

What causes a depeg?

• Redemption fears (“can I actually cash out?”)

If you see a stablecoin at $0.97, you should not be like “wow discount!”

You should be like: “Discount for what reason?”

The hidden risks of stablecoins (read this before you park your life savings)

Stablecoins are useful. They’re also not a free lunch.

1) Issuer risk (for fiat-backed stables)

You’re trusting a company.

• Do they have the reserves?

2) Regulatory and freeze risk

Some stablecoins can be frozen at the address level (depending on issuer and chain tooling).

That’s good if you want stolen funds blocked.

It’s bad if you assume crypto automatically means unstoppable.

3) Banking/rail risk

Stablecoin issuers rely on banks and custodians. If banking rails get disrupted, redemptions can get spicy.

4) Smart contract risk (for DeFi stablecoins)

If the stablecoin is minted via smart contracts, bugs and exploits are a thing.

Want the bigger security picture? Bookmark:

• /blog/crypto-wallet-guide

5) Liquidity risk

Some “stablecoins” are stable until you try to sell size.

Low liquidity means:

• Bigger slippage

6) Yield bait (the “why is the APY 47%?” problem)

If someone offers you insane stablecoin yield, ask:

• Where does yield come from?

If you’ve been around crypto long enough, you’ve seen “risk-free 20% APY” age like milk.

Stablecoins and taxes: yes, it can matter

In many jurisdictions, swapping tokens can be taxable events (even if it feels like “I’m just moving to USDC”).

We’re not tax advisors, but we are realists:

• Track your trades

We wrote a full breakdown here:

• /blog/crypto-taxes-explained

How to choose a stablecoin (practical checklist)

If you’re a beginner, here’s a simple, non-maxi checklist:

Ask these questions

• What chain am I on? (Ethereum, Solana, etc.)

Beginner-safe-ish defaults (general, not financial advice)

• If you want wide DeFi integration: USDC often plugs in cleanly

Golden rule: diversify if the amount matters

If you’re parking meaningful money, splitting between two reputable stablecoins can reduce single-issuer risk.

(Yes, diversification is cringe until it saves you.)

Stablecoins on different chains: the “same” ticker can be different risk

USDC on Ethereum vs USDC on a newer chain can differ in:

• Bridge risk

If a stablecoin is bridged, remember: you’re now trusting the bridge too.

Bridges have historically been… let’s say “a content farm for hackers.”

Common stablecoin myths (please stop repeating these)

They’re not. They’re tokens that aim to be redeemable for dollars.

A peg is maintained, not guaranteed.

Nope. Backing + governance + redemption + liquidity are everything.

Yield is compensation for risk. Always.

Quick glossary (so you can talk like you know what you’re doing)

• Peg: The target price (usually $1)

So… are stablecoins good or sus?

Both.

Stablecoins are one of the most useful crypto inventions:

• They power trading

But they also bundle risks that don’t show up in the ticker price.

If you treat stablecoins like “cash in your pocket,” you’ll miss the point.

Treat them like what they are:

Next reads on CryptoVibe

If this made stablecoins click, keep going:

• What is DeFi? → /blog/what-is-defi