What a stablecoin is, and what backs it

A stablecoin is a token that aims to be worth a fixed amount, almost always one US dollar. How it manages that varies, and so does the risk.

Backed by reserves

USDT and USDC are the large examples. The issuer claims to hold assets worth at least as much as the tokens in circulation, and redeems tokens for dollars. The risk is the issuer: whether the reserves exist, what they are held in, and who can freeze a balance.

Backed by crypto

DAI is collateralised by other crypto assets held in contracts, deliberately over collateralised because that collateral moves in price.

What to keep in mind

• A stablecoin is a claim on an issuer, not a dollar. Issuers can and do freeze addresses.
• The peg is a target, not a law. Large stablecoins have traded off their peg before.
• The network matters as much as the token. The same USDT on the wrong chain is still lost.

For moving value between services without riding the market, they are the most practical tool available. Hold them for the job, not as a savings account.