Stablecoins: What They Are, and How They Hold the Peg
In Plain English
As the name suggests, stablecoins are cryptocurrencies designed to stay stable.
They are built to hold a steady value by being pegged 1:1 to a fiat currency, usually the U.S. dollar. In that case, one stablecoin should equal one dollar.
Think of them as digital dollars that move on crypto rails: they can be sent globally, 24/7, and integrated into apps—without the wild price swings of Bitcoin or many other tokens.
Stablecoins aim to stay at $1 by maintaining a peg. The most common model (like USDC and USDT) is reserve-backed: an issuer holds liquid assets (cash and cash-like instruments) and, in many cases, allows large holders to redeem coins for dollars. That redemption mechanism creates arbitrage that pulls the market price back toward $1.
Other models try to keep the peg by automatically adjusting supply (“algorithmic” stablecoins). Historically, these are more fragile and have broken under stress.
Why It Exists
Most crypto assets are volatile. That is fine for speculation, but it is a problem for everyday transactions.
If you are sending money, buying something, or using a token to store value, you generally do not want the amount to change while you are in the middle of using it. Stablecoins exist to solve that practical problem: they are meant to move like crypto, but behave like cash.
Why It Matters
Stablecoins matter because they make crypto usable for normal money tasks. If you want to move value digitally without the price changing mid-transfer, stablecoins are the simplest option in the crypto world. That is why they show up so often in payments and transfers, not just in trading.
Common Misconception
A stablecoin is not a dollar in a bank account. It’s a token that tries to track $1. How reliable that peg is depends on reserve quality, redemption access, transparency, and the banking rails behind it.