03 / STABLECOINS
Stablecoins aim to track a reference value. Understanding how that target is maintained matters more than assuming that a familiar dollar symbol means cash.
A stablecoin is a token designed to follow a reference value, often a national currency. The design may use reserves, onchain collateral, incentives, or a combination of mechanisms. The market price can still move away from its target, and selling a token on a market is different from redeeming it with an issuer.
The complete stablecoin guide explains pegs, backing, and the difference between a token’s trading price and the rights available to its holder.
| Design | What supports the target | Questions worth asking |
|---|---|---|
| Reserve-backed | Assets held through an issuer or reserve arrangement | What are the reserves, who holds them, and who can redeem? |
| Crypto-collateralized | Collateral and protocol rules | How are collateral prices measured, and when can liquidations occur? |
| Algorithmic or hybrid | Incentives and other design-specific mechanisms | What happens when demand contracts or confidence falls? |
These categories are starting points, not quality ratings. A reserve statement should be read for its date, scope, exclusions, and the entity it covers. A collateral dashboard cannot explain every legal or operational dependency by itself.
The reference price is the value the token aims to track. The market price is what counterparties currently offer on a particular venue. The redemption value is what an eligible holder can receive under the applicable issuer or protocol rules, after any conditions and costs. Those values need not match at every moment.
Liquidity also varies by market and network. A displayed price does not show how much could be traded at that price, whether withdrawals are available, or what happens during congestion.
A wrapped or bridged version of an asset can add dependencies beyond the original stablecoin. It may rely on a bridge, custodian, contract, or redemption path. Confirm the network and the exact token identifier; a familiar ticker is not enough.
Using a stablecoin in a lending protocol or liquidity pool adds another layer. The token’s price target does not eliminate contract, liquidation, counterparty, or withdrawal risk. Any offered yield should be understood as payment associated with an activity and its risks, rather than an intrinsic property of the stablecoin.
Keep these answers with your broader asset research. Revisit them when terms, reserve disclosures, or protocol designs change. For the practical handling of an asset, continue to wallets and custody.
Source: Ethereum’s stablecoin overview introduces stablecoin designs and their tradeoffs. Each asset requires its own current documentation and terms.
A stablecoin targets a reference price, but its reliability depends on reserves, redemption rules, and the route you use. Learn how the main designs work and where their risks differ.
Read the guide: Stablecoins Explained: Pegs, Reserves, and RisksLiquidity providers supply assets for swaps and may earn fees, but their token balances change as prices move. Explore impermanent loss, concentrated liquidity, and the costs that shape a position.
Read the guide: DeFi Liquidity Pools: Fees and Impermanent LossLearn how network fees differ from spreads and service charges, what wallet estimates mean, why failed transactions can still cost money, and how to budget for an entire crypto transfer route.
Read the guide: Crypto Network Fees: What You Pay and WhyHave a topic suggestion or a correction to share?
