Are stablecoins stable? Come on, it’s in the name!
Of course, the crypto industry has certainly seen misnamed categories. Does anyone remember NuBits? Surely you lost money on Terra? Just last year, DeFi stables including Synthetix and Ethena lost their pegs. And even robust stablecoins like Circle’s USDC and Tether have seen temporary decoupling over the years.
It seems that basic questions about stablecoins could actually reveal important lines of research, especially when it comes to the structural risks of a nascent technology. As industries look to adopt stablecoins (sometimes even eschewing the much more battle-tested traditional financial system), it’s probably worth reviewing the answers to these basic questions.
During the CoinDesk University Stablecoin School, taking place at Consensus 2026, May 5-7 in Miami, we’ll dive deeper into these questions to give you a solid understanding of why stablecoins are the future and how to implement them into your business to profit.
What is a stablecoin and how is it different from Bitcoin?
Sam Broner, founder of Better Money Company, told CoinDesk that he still receives these questions regularly. Bottom line, then: we are still at a very early stage in the lifecycle of this technology. While a stablecoin is a cryptocurrency that maintains a constant price by being pegged to an asset, such as the US dollar, the price of bitcoin rises and falls depending on supply and demand.
Why can’t I just use fiat?
This is a deceptively important question. The idea behind stablecoins, and cryptocurrencies in general, is that they were created for this Internet era in which we live. Money should be like the Internet: global, real-time, programmable and composable. This innovates on the often clunky architecture of the traditional financial system, where decades of patching an archaic core infrastructure have led to high fees, slow settlements and inflexible services. You can use fiat money, but during our sessions we think you will be convinced that stablecoins are the future.
What keeps the price of a stablecoin at $1?
Just like fiat currencies (and cryptocurrencies), there are different types of stablecoins.
Some maintain their bond by having the same amount of collateral in dollars (or euros or whatever fiat currency they choose) in their coffers. This mechanism design is called fiat collateral, and this is how stablecoins like USDC work: they are 100% backed by cash or cash equivalent assets and can actually be redeemed 1:1 with them.
Other stablecoins have what is known as overcollateralization, such as DAI. MakerDAO’s DAI stablecoin is backed by overcollateralized loans: it maintains its peg to the dollar by locking other assets in contracts as collateral for the creation of DAI.
The last, and slightly controversial, type of stablecoins is based on algorithmic stabilization, that is, computer algorithms are designed to manage supply and demand so that a coin remains pegged to $1. While this is certainly an interesting technology that will continue to be innovated, it has also led to major failures, which subsequently wiped out millions of dollars from the ecosystem.
Still confused? Join any of our CoinDesk University Stablecoin School sessions to talk to the people actually creating stablecoin technology for consumers and businesses.
Who really has the money?
With fully backed stablecoins, the money is held by the issuer. However, that doesn’t mean that a stablecoin issuer has a bank account and deposits $1 the moment a new stablecoin is minted.
Instead, reserves of fiat-backed stablecoins are typically held by custodians such as BlackRock or BNY Mellon. And since each stablecoin issuer decides what its collateral looks like (whether cash or other highly liquid assets), the type of custodian it uses will vary depending on what actually constitutes the reserve.
For algorithmically backed coins or overcollateralized coins, issuers typically hold their version of reserves in smart contracts or blockchain-based wallets.
How do I get a stablecoin?
“Even established banks, fintechs and payments companies that move millions of dollars in transactions every day are asking themselves this,” says Broner of Better Money Company. “And it’s a fair question, because the access routes are not always obvious.”
So don’t be embarrassed if you have to ask again. In the cryptocurrency industry, there are exchanges, wallet providers, custodians, payment platforms, plus decentralized and centralized versions of all of them. The answer depends on what you intend to do with the cryptocurrency after purchasing it.
During CoinDesk University Stablecoin School, you’ll hear from experts in the field about what digital stores you can sponsor to get your hands on stablecoins and what you can do with them afterwards.
What happens if everyone redeems their stablecoins at once?
The US dollar was on the gold standard until 1971, which meant you could walk into your bank and demand an equal amount of gold in exchange for dollars at any time. If you did that now, the bank would laugh at you. But fiat-based stablecoins still work this way.
If you own a USD-backed stablecoin that is 100% collateralized, you can redeem it for dollars at any time. If every person who owned that dollar-backed stable went to the issuer to get their dollars at exactly the same time (a probabilistic nightmare), hypothetically, everyone would get their money back; it just may not be instantaneous.
As the stablecoin market has grown, issuers have moved away from total cash reserves and are instead filling their reserves with Treasury notes and bonds, all of which should be highly liquid. But as the collapse of the Bank of Silicon Valley demonstrated, when people “run to a bank” that holds stablecoins, the peg to the dollar can become a bit unstable.
What happens if the government bans stablecoins?
This is not as far-fetched as it might seem. In the United States, the long-awaited CLARITY Act has been delayed by unresolved issues, such as the ban on stablecoin yields (a legitimately vexed issue). Companies using stablecoins have been cautious about staying on the right side of regulation, even as they received mixed signals from Washington.
Whether CLARITY ends up being approved or not, there’s still a lot to keep in mind when using stablecoins in the US. That’s why we invited the Blockchain Association and some of its partners to break down exactly what your company needs to know about policies and compliance.
Are stablecoins safe?
You’ve read the headlines about people losing millions of dollars in cryptocurrency, whether it’s from losing their private keys, investing in a scam, or a project getting hacked. As we mentioned above, depending on the type of stablecoin you are investing in, there may be more or less risks associated with it.
However, according to Broner, that is rapidly changing as legislation is passed, such as the GENIUS Act, which requires stablecoin issuers to maintain secure collateral as reserves and introduces federal oversight and transparency requirements.
“For an industry trying to gain widespread trust, that’s exactly the foundation you need,” Broner says.
Join us live at Consensus 2026 for our School of Stablecoins workshop series to learn more about how you can implement this new payment method for faster, cheaper, and programmable transactions in this new era of business.
