What Is a Stablecoin? The Dollar, on a Blockchain
Bitcoin can move five percent on a quiet day and ten on a busy one. That’s fine if you’re trading; it’s useless if you’re trying to do anything else. You can’t pay rent in something that might be worth less by Friday, and the whole point of money is that the price holds still. Crypto, by design, does the opposite — which is the gap the stablecoin was invented to fill. A stablecoin is a digital token pegged to something steady, almost always the US dollar: one token, one dollar, moving on a blockchain but holding its price. Or at least, that’s the promise. How well it keeps the promise depends entirely on what’s behind it.
Three kinds, three very different risk profiles
The first kind is fiat-backed. A company holds real dollars and short-term US Treasuries, and issues one token per dollar held. This is by far the most common type, dominated by Tether’s USDT and Circle’s USDC — together more than eighty percent of the entire market.
The second kind is crypto-backed. Instead of dollars, the system locks up other crypto (usually Ethereum) in a smart contract, and you have to lock more than a dollar’s worth to mint a dollar of stablecoin. DAI is the biggest example. The upside is no company sitting on your dollars; the downside is that crypto can crash hard, so the design has to survive stress without breaking.
The third kind is algorithmic. These hold neither dollars nor crypto — they use code and supply mechanics to defend the peg. In May 2022 the largest one, UST, lost its peg and collapsed entirely, vaporizing roughly forty billion dollars in days. Most people now treat purely algorithmic stablecoins as a broken category.
The two giants, same goal, opposite approaches
Talk about stablecoins today and you’re almost always talking about USDT or USDC, which solve the same problem from opposite directions. Tether is the larger, with around a hundred and eighty-five billion dollars in circulation, and it dominates trading outside the US — especially Asia and emerging markets. Its long-running question has been reserve transparency: it publishes quarterly attestations rather than full audits, though it has said a full audit is coming. Circle, which issues USDC, runs the other playbook — a publicly traded US company holding reserves in cash and short-term Treasuries, the cash portion managed by BlackRock, with monthly attestations from Deloitte. As regulators built clearer frameworks, USDC became the institutional pick, favored by payment networks like Visa and Mastercard and anyone who needs regulatory certainty.
Same destination — one dollar in, one dollar out — but the risks differ. With USDT, the concern is reserve transparency. With USDC, it’s operational and regulatory exposure. Neither is risk-free.
Why they matter more than the headlines suggest
Stablecoins now account for roughly three-quarters of all crypto trading volume — the connective tissue between traditional dollars and crypto markets. They settle cross-border payments, give people in countries with weak currencies a way to hold dollars, and park capital between trades. The total market runs north of three hundred billion dollars and is still growing fast.
The trade-off is the one that runs through all of crypto: convenience versus trust. A stablecoin hands you dollars on a blockchain, around the clock, with no bank in the loop. But you’re still trusting whoever issued it to actually have the money behind it — and the entire history of the category is the story of what happens when they don’t.
Not investment advice. WTH Crypto is editorial commentary, not financial guidance.
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