{"id":37720,"date":"2022-08-20T09:02:00","date_gmt":"2022-08-20T06:02:00","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=37720"},"modified":"2025-08-29T20:27:22","modified_gmt":"2025-08-29T17:27:22","slug":"what-are-stablecoins","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/what-are-stablecoins\/","title":{"rendered":"What are stablecoins?"},"content":{"rendered":"<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Key points<\/h2>\n<ul class=\"wp-block-list\">\n<li>Stablecoins are cryptocurrencies with a fixed or steady value.<\/li>\n<li>They serve as a universal unit of account, convenient for trading, storing capital and protecting an investment portfolio from crypto volatility.<\/li>\n<li>Stablecoins can differ by issuer, collateral assets and mechanisms used to hold their value.<\/li>\n<li>There is no single classification. Researchers group projects by criteria such as issuer centralisation, reserve ratio, class of backing assets and more.<\/li>\n<\/ul>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\"><strong>What are stablecoins for?<\/strong><\/h2>\n<p>Popular stablecoins are highly liquid: they are available in size on almost any platform.<\/p>\n<p>They are also a universal medium of exchange and store of value among crypto investors and traders. It is easier to trade them against other cryptocurrencies than against fiat. Unlike fiat, stablecoins can be moved between accounts and addresses more quickly and easily.<\/p>\n<p>They also hedge crypto-portfolio volatility and are widely used in DeFi applications.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Which stablecoins are popular?<\/h2>\n<p>Hundreds of stablecoins exist. Here are the top ten by market capitalisation (CoinMarketCap, August 2022):<\/p>\n<ol class=\"wp-block-list\">\n<li>Tether (USDT);<\/li>\n<li>USD Coin (USDC);<\/li>\n<li>Binance USD (BUSD);<\/li>\n<li><span style=\"color: initial;\">Dai (DAI)<\/span>;<\/li>\n<li><span style=\"color: initial;\">TrueUSD (TUSD);<\/span><\/li>\n<li>Pax Dollar (USDP);<\/li>\n<li>USDD (USDD);<\/li>\n<li>Neutrino USD (USDN);<\/li>\n<li>Fei USD (FEI);<\/li>\n<li>Gemini Dollar (GUSD).<\/li>\n<\/ol>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\"><strong>What are stablecoins pegged to?<\/strong><\/h2>\n<p>In crypto, USD\u2011pegged stablecoins are most common. The best\u2011known is Tether (USDT). One USDT equals $1, with minimal deviations. There are also coins pegged to other currencies, such as the euro \u2014 Stasis Euro (EURS) \u2014 and the Singapore dollar \u2014 XSGD.<\/p>\n<p>Some stablecoins target a fiat price but use cryptocurrencies as collateral. Stability is achieved via overcollateralisation or a smart arbitrage algorithm. The most prominent example of a crypto\u2011collateralised stablecoin is DAI by MakerDAO.<\/p>\n<p>You can also buy gold\u2011pegged stablecoins \u2014 notably PAX Gold (PAXG) and Tether Gold (XAUT). Unlike traditional gold instruments such as ETFs, stablecoin issuers do not charge a management fee, and crypto settlements are faster and cheaper. These coins, however, are not very popular.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">How do stablecoins differ?<\/h2>\n<p>Each stablecoin uses its own system to maintain value. There is no standard taxonomy, but several core criteria set them apart:<\/p>\n<ul class=\"wp-block-list\">\n<li>Class of reserve assets \u2014 fiat or cryptocurrency.<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Reserve ratio. Reserves may cover only part of the circulating supply, match it, or even exceed it.<\/li>\n<\/ul>\n<ul class=\"wp-block-list\">\n<li>Price\u2011stabilisation method \u2014 reserves only (mostly for centralised projects) or reserves plus an algorithm (used by algorithmic stablecoins).<\/li>\n<\/ul>\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"474\" src=\"https:\/\/forklog.com\/wp-content\/uploads\/stablecoin_expl_p-1024x474.png\" alt=\"\u0427\u0442\u043e \u0442\u0430\u043a\u043e\u0435 \u0441\u0442\u0435\u0439\u0431\u043b\u043a\u043e\u0438\u043d\u044b?\" class=\"wp-image-182541\" srcset=\"https:\/\/forklog.com\/wp-content\/uploads\/stablecoin_expl_p-1024x474.png 1024w, https:\/\/forklog.com\/wp-content\/uploads\/stablecoin_expl_p-300x139.png 300w, https:\/\/forklog.com\/wp-content\/uploads\/stablecoin_expl_p-768x355.png 768w, https:\/\/forklog.com\/wp-content\/uploads\/stablecoin_expl_p.png 1200w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption>Types of stablecoins. Data: ForkLog<\/figcaption><\/figure>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What are centralised stablecoins and who runs them?<\/h2>\n<p>Most popular stablecoins are issued by centralised entities. Each manages a fund holding reserves in various assets and securities. The fund undergoes regular independent attestations to verify its stated size and composition.<\/p>\n<p>The company <a href=\"https:\/\/forklog.com\/en\/news\/what-is-tether-usdt\">Tether<\/a>, which runs the largest stablecoin by market value, USDT, publishes such reports <a href=\"https:\/\/tether.to\/ru\/transparency\/#reports\" target=\"_blank\" rel=\"noreferrer noopener\">on its website<\/a>. According to an August 2022 attestation, Tether\u2019s reserves include US Treasury bills, cash, commercial paper and money\u2011market funds.<\/p>\n<p>Similarly, the accounts of BUSD \u2014 a dollar\u2011pegged stablecoin <a href=\"https:\/\/forklog.com\/en\/news\/what-is-binance\">issued<\/a> by the Binance exchange \u2014 are reviewed.<\/p>\n<p>Stablecoin operators are organisations registered in major jurisdictions. The second\u2011largest dollar stablecoin, USDC, is managed by a consortium of American firms, Circle and Coinbase. It <a href=\"https:\/\/www.circle.com\/en\/usdc#attestation-section\" target=\"_blank\" rel=\"noreferrer noopener\">controls<\/a> reserves consisting mainly of cash and short\u2011term US government bonds. The company managing BUSD\u2019s reserves operates in New York state.<\/p>\n<p>Only the issuer controls the supply of a centralised stablecoin, expanding or shrinking it in line with reserve levels.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What are the pros and cons of centralised stablecoins?<\/h2>\n<p>On the plus side, centralised stablecoins are resilient because their price is fully backed by low\u2011volatility assets. They are liquid \u2014 available on virtually every crypto\u2011trading platform. They are convenient for settlements and capital storage and as base currencies in trading pairs.<\/p>\n<p>On the minus side, centralisation is a weak point. Troubles at the organisation controlling reserves \u2014 from regulatory claims to manipulated reporting \u2014 can ripple through to all holders. It is also unclear how exactly an operator might use reserves.<\/p>\n<p>A telling example is USDT. In early 2019 the New York attorney\u2011general accused the Bitfinex exchange of using capital from its affiliate, Tether, to cover its own losses of user funds. The case involved $850m that the platform lost access to after transferring them to the Panamanian processor Crypto Capital.<\/p>\n<p>Bitfinex repaid the principal owed to Tether <a href=\"https:\/\/forklog.com\/en\/news\/bitfinex-repaid-a-750-million-loan-taken-from-tether\">only in early 2021<\/a> and soon settled with the authorities. Meanwhile, investors sued Tether, accusing the company of \u201cillegal and deceptive\u201d practices. In April 2022 a Crypto Capital defendant pleaded guilty to all counts, including \u201cshadow banking\u201d.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What are algorithmic stablecoins?<\/h2>\n<p>The stability of some coins is maintained not by traditional instruments but by cryptocurrencies.<\/p>\n<p>Because digital\u2011asset prices can swing sharply, maintaining full backing is difficult. One approach is decentralised governance plus a purpose\u2011built algorithm that keeps the price near target according to preset rules.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What kinds of algorithmic stablecoins exist?<\/h2>\n<p>One way to keep an algorithmic stablecoin steady is overcollateralisation, where collateral value exceeds the total token supply. The most popular example is DAI, a cryptocurrency any user can mint via the MakerDAO protocol.<\/p>\n<p>To do so, a user must lock crypto as collateral worth more than 100% of the DAI they mint. This helps avoid undercollateralisation during sharp crypto sell\u2011offs. If the collateral ratio falls below the threshold, the position is forcibly liquidated.<\/p>\n<p>DAI is indeed stable, but its clear drawback is low capital efficiency due to high collateral requirements.<\/p>\n<p>In some designs, creators do not control issuance \u2014 any user can mint. The price is regulated by market participants rather than a central organisation. Stability is supported by an additional cryptoasset that underwrites liquidity.<\/p>\n<p>The most popular algorithmic stablecoin was UST from the Terra project. Its price was held via arbitrage by holders \u2014 a supply\u2011and\u2011demand mechanism. The asset that supported UST\u2019s price was the project\u2019s native coin, LUNA.<\/p>\n<p>For a long time UST was the largest algorithmic stablecoin, but in spring 2022, after a chain of events, it lost its dollar peg and the project effectively ceased to exist.<\/p>\n<p>Other unusual models include Ampleforth (AMPL), Fei USD (FEI), Frax Finance (FRAX) and Magic Internet Money (MIM).<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\"><strong>How might stablecoins evolve?<\/strong><\/h2>\n<p>After Terra\u2019s collapse, with rare exceptions the crypto market lost confidence in algorithmic stablecoins. The main success story in this niche is DAI by MakerDAO.<\/p>\n<p>Centralised projects such as Tether and USDC remain the dominant players. However, several jurisdictions, including the United States and the European Union, plan sweeping rules for stablecoin issuers that could complicate their use.<\/p>\n<p>Regulators and government agencies regularly criticise stablecoins. In late 2021 the US Treasury released a report on stablecoin risks, highlighting opaque reserves and calling them a threat to investors. The Federal Reserve argues stablecoins pose risks due to potential problems converting them into fiat.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Further reading<\/h2>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-are-erc-20-tokens\">What are ERC\u201120 tokens?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-a-central-bank-digital-currency-cbdc\">What are central bank digital currencies (CBDCs)?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-lido\">What is Lido?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-decentralised-finance-defi\">What is decentralised finance (DeFi)?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-the-austrian-school-of-economics\">What is the Austrian school of economics?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-a-dao-decentralised-autonomous-organisation\">What is a decentralised autonomous organisation (DAO)?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-coin-burning-and-how-does-it-affect-prices\">What is coin burning and how does it affect price?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-machine-learning\">What is machine learning?<\/a><\/p>\n<p>What is NEAR Protocol?<\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-binance\">What is Binance?<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>What underpins stablecoins\u2019 prices? Which stablecoins are most popular? How do centralised stablecoins differ from algorithmic ones, and what are the pros and cons of each? ForkLog\u2019s explainer breaks it down.<\/p>\n","protected":false},"author":1,"featured_media":37721,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"1","cryptorium_level":"2","_short_excerpt_text":"An explainer on what stablecoins are, how they work and how they differ.","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[2113],"tags":[2117,2118,807],"class_list":["post-37720","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptorium","tag-101-altcoins","tag-101-trading-and-investing","tag-stablecoins"],"aioseo_notices":[],"amp_enabled":true,"views":"370","promo_type":"1","layout_type":"1","short_excerpt":"An explainer on what stablecoins are, how they work and how they differ.","is_update":"","_links":{"self":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37720","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/comments?post=37720"}],"version-history":[{"count":1,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37720\/revisions"}],"predecessor-version":[{"id":37722,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37720\/revisions\/37722"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media\/37721"}],"wp:attachment":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media?parent=37720"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/categories?post=37720"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/tags?post=37720"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}