Stablecoin
A cryptocurrency designed to maintain a stable value relative to a reference asset, typically the US dollar. Stablecoins provide a way to hold value and transact in crypto without exposure to price volatility. The three main types are: fiat-backed (USDC, USDT — backed by dollar reserves), crypto-backed (DAI — overcollateralized with crypto), and algorithmic (maintaining peg through algorithmic supply mechanisms).
“USDC is a fiat-backed stablecoin where each token is redeemable for $1 held in reserve by Circle. Traders use stablecoins to park profits during volatile markets without converting back to traditional banking.”
USDC (USD Coin)
A fully-reserved, fiat-backed stablecoin pegged 1:1 to the US dollar, issued by Circle and originally co-founded with Coinbase. Each USDC token is backed by US dollars held in segregated bank accounts and short-term US Treasuries, with reserves attested monthly by an independent accounting firm. USDC is one of the most trusted stablecoins in DeFi and is available on multiple blockchains.
USDT (Tether)
The largest stablecoin by market capitalization, pegged 1:1 to the US dollar and issued by Tether Limited. USDT is the most widely traded cryptocurrency by daily volume and the dominant quote currency on exchanges globally, particularly in Asia. Tether's reserves include US Treasuries, cash, and other investments, though its reserve composition has faced scrutiny and regulatory settlements.
DAI
A decentralized, crypto-collateralized stablecoin pegged to the US dollar, created by the MakerDAO protocol. Unlike USDC or USDT, DAI is not backed by fiat reserves — it is minted by users who deposit cryptocurrency as overcollateralized collateral into Maker vaults. DAI maintains its peg through algorithmic interest rates and liquidation mechanisms.
Algorithmic Stablecoin
A stablecoin that maintains its peg through algorithmic mechanisms — such as minting and burning tokens or adjusting supply via incentives — rather than being backed by fiat reserves or overcollateralized crypto. Algorithmic stablecoins are considered higher risk because they can experience 'death spiral' depeg events if confidence collapses.
Depeg
An event where a stablecoin loses its intended peg to the underlying asset (usually $1.00 USD), trading significantly above or below its target value. Depegs can be temporary (caused by market panic or liquidity crunches) or permanent (caused by insolvency or mechanism failure), and they can trigger cascading liquidations across DeFi.