KoinlyticsA stablecoin sounds boring next to Bitcoin or NFTs. It is also the most-used crypto asset on earth. More stablecoin volume moves each day than PayPal, Venmo and Cash App combined. Here is why, and where the risks hide.
The pitch
Stablecoins let you hold and move dollars using crypto rails. Same wallet, same speed as any other crypto, no ten-percent moves overnight. If you have ever tried to send $1,000 internationally on a Saturday and been told to wait until Monday, you understand why $310 billion of stablecoins are in circulation.
Three ways to build one
All stablecoins target $1. How they hold that peg differs completely.
1. Fiat-backed (USDC, USDT, PYUSD, FIDD)
The issuer holds actual dollars (or Treasury bills) in a bank account. Every token is a claim on those reserves, redeemable 1:1. If they hold what they say they hold, the peg is trivial to maintain.
- Risk: the issuer lies about reserves or the bank fails.
- USDC: audited by top-tier accounting firms, US-regulated issuer.
- USDT: attestations, not full audits. Has held peg for a decade.
2. Crypto-backed (DAI, LUSD)
Instead of bank dollars, the reserves are ETH or other crypto locked in smart contracts. The system requires over-collateralization: to mint $1 of DAI, you deposit $1.50 of ETH. If ETH falls, positions are liquidated to keep the peg.
- Risk: sudden crash liquidates too many positions, peg breaks.
- Pro: fully on-chain, no bank dependency.
3. Algorithmic (historical, mostly failed)
No reserves. Code and market incentives supposedly hold the peg. UST/Luna was the flagship. It collapsed in May 2022, wiping out $40 billion in days. Most algorithmic stablecoins have failed the same way.
Why regulators care so much
Stablecoins are, from a regulator's view, unregulated dollar-issuing entities. The US GENIUS Act (2026), EU MiCA (2024), and similar rules elsewhere require issuers to hold high-quality reserves, publish disclosures, and offer legal redemption. USDC and EURC have adapted. USDT declined the EU rules and is being delisted from European exchanges.
What to check before you use one
The right way to think about them
Stablecoins are tools, not investments. Their upside is zero. Their downside is losing your money if the peg breaks. Use the ones with the strongest reserve backing (USDC is currently the market's gold standard) and treat every non-audited stablecoin as riskier than the coin it is trying to imitate.