Stablecoins Explained: Not as Stable as the Name

There are three broad types, with very different risk profiles. Fiat-backed stablecoins claim to hold real dollars or equivalents in reserve for each token — their safety depends entirely on whether those reserves genuinely exist and are audited. Crypto-collateralised stablecoins are backed by other crypto, over-collateralised to absorb volatility. Algorithmic stablecoins try to maintain the peg through code and incentives with little or no real backing — and this design has failed catastrophically, most infamously when a major algorithmic stablecoin collapsed to near zero and erased tens of billions in value.

The practical lesson: "stable" describes an aim, not a guarantee. A stablecoin can de-peg if reserves are doubted, the issuer is sanctioned, or the mechanism breaks. Even holding stablecoins on a platform to earn yield reintroduces the platform risk we cover in crypto lending risks.

Stablecoins connect to almost everything: they are how value moves between exchanges, they live as contracts on networks like Ethereum, and their risks are part of overall volatility and risk.

Know which type you hold and who backs it; "stable" is a goal, not a promise. Capital at risk; stablecoins can de-peg. This is not financial advice.