What Are Stablecoins?

Stablecoins are a category of cryptocurrency designed to maintain a stable value. They are typically pegged to fiat currencies like the US Dollar or Euro, precious metals, or other assets. Various mechanisms are used to keep their price stable.

The Four Major Types of Stablecoins

• Fiat-backed: Collateralized by reserves of fiat currency such as the US Dollar or Euro. USDT, USDC, and BUSD are examples of fiat-backed stablecoins.
• Crypto-backed: Backed by cryptocurrencies, usually over-collateralized. For example, DAI is backed by assets like Ethereum and relies on smart contracts to maintain stability.
• Algorithmic: Maintains price stability through algorithm-controlled supply adjustments, without physical or fiat asset reserves. TerraUSD (UST) previously used this mechanism.
• Commodity-backed: Collateralized by real-world assets like precious metals. Examples include PAX Gold (PAXG) and Tether Gold (XAUT).

Examples of Common Stablecoins

• Tether (USDT): The leading stablecoin by market share, fiat-backed, with reserves primarily in US Dollars and other highly liquid assets.
• USD Coin (USDC): Issued by Circle and Coinbase, recognized for transparency and strong regulatory compliance.
• DAI: A decentralized stablecoin issued by MakerDAO (now Sky), backed by crypto assets and operated through smart contracts.
• Other influential stablecoins in the market include TUSD, PAX (now USDP), sUSD, USDN, and Reserve (RSV).

Latest Developments in the Stablecoin Industry in 2025

• Summer of Stablecoins: 2025 is being referred to as the Summer of Stablecoins, as their role in cross-border payments and settlement is drawing significant attention from traditional financial institutions.
• Renminbi Stablecoin: China is exploring the issuance of a Renminbi-backed stablecoin, potentially piloting it in Hong Kong as part of efforts to internationalize the RMB.
• US Regulatory Progress: The United States introduced the Genius Act to establish a federal regulatory framework for US Dollar stablecoins.
• EU Digital Euro: The European Union is accelerating the launch of a digital Euro to strengthen the Euro’s global financial competitiveness.

How Should Newcomers Choose a Stablecoin?

• Prioritize fiat-backed stablecoins such as USDT and USDC, focusing on stability, high liquidity, and strong market reputation.
• Pay attention to transparency and reserve security: USDC publishes monthly audit reports, while the market closely monitors USDT’s reserves.
• If decentralization is key, consider DAI, but be aware of the risks associated with crypto asset price volatility.
• Be cautious with algorithmic stablecoins. For example, the UST collapse resulted in substantial losses.
• Monitor regulatory and policy trends, as developments in the US, EU, and China can significantly impact the issuance and use of stablecoins.