Are stablecoins stable? Come on, it’s in the name!
Of course, category misnaming does occur in the cryptocurrency industry. Does anyone remember NuBits? You must have lost money on Terra? Just last year, DeFi stablecoins including Synthetix and Ethena lost their pegs. Even powerful stablecoins like Circle’s USDC and Tether have experienced temporary decoupling over the years.
It appears that fundamental questions about stablecoins may actually reveal important lines of inquiry, especially as they relate to the structural risks of emerging technologies. As industries seek to adopt stablecoins—sometimes even bypassing the more tried-and-true traditional financial system—it may be worth revisiting the answers to these fundamental questions.
During CoinDesk University Stablecoin Academy’s Consensus 2026 in Miami, May 5-7, we’ll dive into these questions to give you insights into why stablecoins are the future and how you can apply them to your business to profit.
What is a stablecoin and how is it different from Bitcoin?
Better Money Company founder Sam Broner told CoinDesk he still gets these questions frequently. The bottom line is: We’re still in the early stages of this technology’s life cycle. A stablecoin is a cryptocurrency that maintains price stability by being pegged to an asset such as the U.S. dollar, whereas the price of Bitcoin fluctuates up and down based on supply and demand.
Why can’t I just use fiat currency?
This is a seemingly important question. The idea behind stablecoins, and cryptocurrencies in general, is that they are built for this internet age we live in now. Money should be like the Internet—global, real-time, programmable, and composable. This innovates the often clunky architecture of the traditional financial system, where decades of Band-Aids on antiquated core infrastructure have led to high fees, slow settlements and inflexible services. So you can use fiat currencies, but in our session we think you’ll be convinced that stablecoins are the future.
What keeps stablecoin prices at $1?
Just like fiat currencies (and cryptocurrencies), there are different types of stablecoins.
Some people stay connected by keeping the same amount of USD (or Euros or whatever fiat currency they choose) as collateral in their vaults. This mechanism design is called fiat collateral, and it’s how stablecoins like USDC work – they are 100% backed by cash or cash-equivalent assets, and are actually convertible 1:1 against those assets.
Other stablecoins have what is called over-collateralization, such as DAI. MakerDAO’s stablecoin DAI is backed by over-collateralization: it maintains its peg to the U.S. dollar by locking other assets in the contract as collateral for DAI creation.
The final, somewhat controversial type of stablecoin relies on algorithmic stability—that is, computer algorithms built to manage supply and demand so that the stablecoin is pegged to $1. While this was certainly an interesting technology that would continue to innovate, it also resulted in a massive failure and subsequent loss of millions of dollars from the ecosystem.
Still confused? Attend any of our CoinDesk University Stablecoin Academy sessions to talk to the people actually building stablecoin technology for consumers and enterprises.
Who actually holds the money?
With a fully backed stablecoin, the issuer holds the funds. However, this does not mean that stablecoin issuers have bank accounts and deposit $1 each time new stablecoins are minted.
Instead, fiat-backed stablecoin reserves are typically held by custodians like BlackRock or BNY Mellon. Since each stablecoin issuer determines the form of its collateral—whether cash or other highly liquid assets—the type of custodian they use will vary based on the actual makeup of their reserves.
For over-collateralized stablecoins or algo-backed tokens, issuers typically keep a version of their reserve in a smart contract or blockchain-based wallet.
How do I obtain stablecoins?
“Even established banks, fintechs and payments companies that transact millions of dollars a day are asking this question,” said Better Money Company’s Broner. “It’s a fair question because on-ramps 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, and decentralized and centralized versions of all of these. The answer depends on what you want to do with your cryptocurrency once you obtain it.
During the CoinDesk University Stablecoin Academy, you’ll hear from experts in the field about which digital storefronts you can visit to earn stablecoins, and what you can do with them afterwards.
What would happen if everyone redeemed their stablecoins immediately?
Until 1971, the U.S. dollar was on the gold standard, which meant you could walk into a bank at any time and ask for an equivalent amount of gold in exchange for U.S. dollars. If you did this now, you would be laughed at by the banks. But fiat-based stablecoins actually still work this way.
If you own a 100% collateralized USD-backed stablecoin, you can exchange it for USD at any time. If everyone who owns a USD-backed stablecoin demands USD from the issuer at the same time (a probability nightmare), then assuming everyone will get their money back – it just might not happen immediately.
As the stablecoin market has grown, issuers have moved away from full cash reserves and instead filled their reserves with Treasury bills and bonds, all of which should be highly liquid. But as the Silicon Valley Bank collapse illustrates, when people “run on the banks” that hold stablecoins, the dollar peg can become somewhat unstable.
What if the government bans stablecoins?
This isn’t as far-fetched as it sounds. In the United States, the long-awaited Clarification Act has been hampered by unresolved issues, such as a ban on stablecoin yields (a legitimately thorny issue). Businesses using stablecoins have been wary of staying on the right side of regulation, despite mixed signals from Washington.
Regardless of whether CLARITY ultimately passes, there is still a lot to be aware of when using stablecoins in the United States. That’s why we invited the Blockchain Association and some of its partners to break down what your business needs to know about policy and compliance.
Are stablecoins safe?
You’ve read the headlines about people losing millions of dollars in cryptocurrency, whether it’s lost private keys, investment scams, or projects that have been hacked. As we mentioned above, depending on the type of stablecoin you invest in, there may be more or less associated risk.
However, Broner said this is changing rapidly with the passage of legislation such as the Genius Act, which requires stablecoin issuers to hold safe collateral as reserves and introduces federal oversight and transparency requirements.
“For an industry trying to gain mainstream confidence, this is exactly the foundation you need,” Broner said.
Join us at Consensus 2026 for our Stablecoin Academy seminar series to learn more about how to implement this new payment method in this new era of commerce to enable faster, cheaper, and more programmable transactions.