Stablecoin

A stablecoin is a token designed to hold a steady value, usually one US dollar. The largest, Tether (USDT) and USD Coin (USDC), are issued by companies that say they hold reserves such as cash and short-term US Treasury bills to back every token, and that let approved customers redeem tokens for dollars.

Other designs include crypto-collateralised stablecoins such as DAI, which are backed by more crypto than they issue, and algorithmic stablecoins that rely on market incentives. The algorithmic TerraUSD (UST) lost its peg and collapsed in May 2022, wiping out tens of billions of dollars.

Stablecoins are widely used for trading, moving money between exchanges and storing value on-chain. Their risks include the issuer's reserves and solvency, frozen addresses, regulation and temporary de-pegs during market stress.