What Are Stablecoins?

What Are Stablecoins Get To Know Their Role in Crypto

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KoinGuide Team

Last Updated: June 2025
Get to Know the stablecoins and their crucial role in the crypto ecosystem

What Are Stablecoins?

Stablecoins are cryptocurrencies designed to maintain a stable value relative to a reference asset, typically the US Dollar. They combine the benefits of digital currencies with price stability

Key Point: While most cryptocurrencies are volatile, stablecoins aim to keep their value steady, making them useful for everyday transactions and as a safe haven during market turbulence.

Types of Stablecoins

Fiat-Collateralized

Backed 1:1 by traditional currencies held in bank accounts

Examples: USDC, USDT, BUSD
Pros: Most stable, widely accepted
Cons: Requires trust in issuer

Crypto-Collateralized

Backed by other cryptocurrencies, over-collateralized for stability

Examples: DAI, sUSD
Pros: Decentralized, transparent
Cons: More complex, capital inefficient

Commodity-Backed

Backed by physical commodities like gold or precious metals

Examples: PAXG, XAUT
Pros: Commodity exposure, stable value
Cons: Storage costs, less liquid

Algorithmic

Use algorithms and smart contracts to control supply and maintain stability

Examples: FRAX, AMPL
Pros: No collateral needed, scalable
Cons: Experimental, higher risk

Popular Stablecoins

USDC (USD Coin)
FiatBacked

Issued by Circle, fully backed by US dollars and short-term US government bonds. Monthly attestations provide transparency.

Market Cap: ~$25B+ • Widely supported across exchanges and DeFi

USDT (Tether)
Fiat-Backed

The oldest and most widely used stablecoin. Backed by various assets including cash, commercial paper, and bonds.

Market Cap: ~$70B+ • Highest trading volume globally

DAI
Crypto-Backed

Decentralized stablecoin backed by cryptocurrency collateral. Governed by MakerDAO and maintains stability through smart contracts.

Market Cap: ~$4B+ • Fully decentralized and transparent

Why Use Stablecoins?

Trading & Investing

• Safe haven during market volatility
• Quick entry/exit without fiat conversion
• Avoid bank transfer delays
• Arbitrage opportunities

DeFi Applications

• Lending and borrowing
• Yield farming and liquidity provision
• Payments and remittances
• Savings accounts with higher yields

Risks and Considerations

Potential Risks

• Counterparty risk (centralized stablecoins)
• Regulatory uncertainty
• Smart contract risks (DeFi stablecoins)
• Depeg events during extreme market stress

Best Practices

• Diversify across multiple stablecoins
• Research the backing and governance
• Monitor for any depegging events
• Use reputable platforms and wallets