Stablecoins Explained
Stablecoins are the dollars of crypto. How they hold their value, the main types and the risks that come with each.
Updated October 1, 2026 · 1 min read
What they are for
A stablecoin is a token designed to stay at a fixed value, almost always $1. Traders use them to move between coins without leaving crypto, to park gains, and to send dollars across borders quickly. A large share of all crypto trading volume involves a stablecoin.
The main types
Fiat-backed
The issuer holds cash and short-term government bonds and lets approved customers redeem tokens for dollars. USDT (Tether) and USDC (Circle) are the largest. The peg holds because arbitrageurs can redeem or create tokens whenever the price drifts. The risk is the issuer: its reserves, its banks and the regulators it answers to.
Crypto-backed
Users lock more crypto than the value of the stablecoins they borrow, such as ETH worth $150 to mint $100 of DAI. If collateral falls too far, it is sold automatically. The risk is a crash fast enough to overwhelm those sales.
Algorithmic
These try to hold the peg with supply rules and a second token instead of full collateral. TerraUSD, the best-known example, collapsed in 2022 and wiped out tens of billions of dollars. Treat any stablecoin that is not fully backed with great caution.
Depegs
Even well-backed stablecoins can trade slightly off $1 during stress. USDC briefly fell to around $0.88 in March 2023 when one of its banks failed, before recovering. A stablecoin trading below $0.98 for more than a moment is a warning sign.
Why they matter for the market
The total value of stablecoins is money ready to buy crypto. A rising stablecoin share of the total market often reflects caution, which is why it is one of the inputs to our Fear and Greed Index. You can follow stablecoin supply on our market charts.
Coins mentioned
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Educational content only, not financial advice.