What is Stablecoin?
Learn what is stablecoin, how these cryptocurrencies minimize volatility, and their role in Web3. Explore types, benefits, and market trends. Discover how to manage them with TokenPocket.
What is Stablecoin? Everything You Should Know
What is Stablecoin？Before reading, we recommend having a basic understanding of blockchain technology. For more detailed knowledge about blockchain and Web3, you can also refer to the official Bitcoin whitepaper below.
Click to view: Bitcoin White Paper
Part 1: Definition of Stablecoins
Stablecoin is a type of cryptocurrency designed to maintain a relatively stable value by being pegged to stable assets such as the US dollar, gold, or other crypto assets. Unlike highly volatile cryptocurrencies like Bitcoin or Ethereum, stablecoins offer price stability and are widely used for trading, payments, value storage, and decentralized finance (DeFi). The core purpose of stablecoins is to combine the transparency, decentralization, and efficiency of blockchain technology with a steady valuation, avoiding extreme price fluctuations.
According to the Bank for International Settlements (BIS) 2024 report, stablecoins have become a vital component of the crypto ecosystem. Their rapid growth is driven by demand for cross-border payments, the expanding DeFi landscape, and emerging markets seeking dollar alternatives. Stablecoins are not only convenient for individual users but are also being adopted by institutions and enterprises for supply chain finance, payroll, and international settlements.
Part 2: Three Main Types of Stablecoins
After introducing what is stablecoin，now we like to talk about three types of stablecoins:
1. Fiat-Collateralized Stablecoins
Definition: Backed by fiat currencies (e.g., USD, EUR) held in reserve, typically pegged at a 1:1 ratio. Issuers are expected to hold equivalent reserves to ensure full redemption.
Examples:
USDT (Tether): The largest stablecoin by market cap, with ~$155.4B in circulation (as of June 2025), available on multiple chains like TRON, Ethereum, and BNB Chain.
USDC (USD Coin): Issued by Circle, with a ~$60.63B market cap. Emphasizes compliance and regular third-party audits.
USD1: Launched by World Liberty Financial (WLFI) in March 2025, pegged 1:1 to the USD and backed 100% by U.S. Treasuries, cash deposits, and equivalents.
Advantages: Highly stable, easy to understand, ideal for beginners and institutions. Risks: Dependence on issuer transparency and regulatory compliance; exposure to asset freezes or legal scrutiny.
2. Crypto-Collateralized Stablecoins
Definition: Minted by overcollateralizing crypto assets (e.g., ETH, BTC) through smart contracts, with collateral ratios typically between 150%–200% to absorb volatility.
Example:
DAI: Issued by MakerDAO, pegged to USD via smart contracts on Ethereum.
Advantages: Decentralized, no reliance on central entities, good for privacy-conscious and censorship-resistant users. Risks: Subject to liquidation risks during price crashes; requires technical understanding to use effectively.
3. Algorithmic Stablecoins
Definition: Not backed by collateral, instead use algorithms to adjust token supply based on demand, functioning similarly to central bank monetary policy.
Examples:
USDe (Ethena): Maintains stability using algorithms and hedging strategies; ~$5.897B market cap.
FRAX: A hybrid model combining partial collateralization with algorithmic controls.
Advantages: Capital efficient and theoretically more scalable. Risks: Stability heavily depends on market confidence and algorithmic design; prone to failure during extreme market conditions (e.g., UST crash in 2022).
Part 3: Core Benefits of Stablecoins
Stablecoins are gaining adoption worldwide due to several key features:
Price Stability: Pegged to assets like the USD, stablecoins avoid volatility, making them ideal for daily use and value storage.
Efficient Cross-Border Payments: According to the World Bank (2024), traditional cross-border transfers take ~5 days and cost 6.35%. In contrast, stablecoins on blockchains (e.g., Solana) enable near-instant transfers with fees as low as $0.0001.
Digital Safe Haven: In volatile markets, investors convert assets into stablecoins to manage risk while staying within the crypto ecosystem.
DeFi Backbone: Used extensively in lending, yield farming, and DEXs like Uniswap and Curve to generate returns.
Financial Inclusion: In emerging markets, stablecoins offer USD-denominated assets to unbanked populations, enabling greater global access to finance.
Part 4: Current Market Landscape and Trends
Market Size
Total Market Cap: Over $250 billion (as of June 2025), accounting for 7.48% of the entire crypto market.
Active Users: More than 240 million active addresses over the past 12 months; 1.4 billion transactions totaling $6.7 trillion in volume.
Growth Outlook
The U.S. Treasury Borrowing Advisory Committee projects the market to reach $2 trillion by 2028.
Citi forecasts a potential $1.6 trillion market cap by 2030, assuming clear regulation.
Market Leaders
USDT: 62.05% market share, $155.4B supply, active across TRON (TRC20), Ethereum (ERC20), and more.
USDC: Second-largest, $60.63B supply, favored by institutions due to transparency.
Others: USDe ($5.897B), DAI ($5.3B), USD1 ($2.177B) are rapidly gaining ground.
Regulatory Developments
United States: The 2024 Stablecoin Regulation Act mandates reserve audits and capital backing, benefiting compliant issuers like USDC. Meanwhile, GENIUS Act has PASSED on June 18th, 2025.
European Union: MiCA (Markets in Crypto-Assets Regulation), fully enforced by end-2024, imposes strict standards on issuers.
Hong Kong: On May 21, 2025, the Legislative Council passed the Stablecoin Bill, allowing licensed institutions to issue fiat-pegged stablecoins under HKMA supervision — a major step in global crypto regulation.
Emerging Markets: In regions like Africa and Latin America, stablecoins serve as inflation hedges but face regulatory uncertainties.
Part 5: Major Stablecoins & Use Cases
USDT (Tether)
Traits: Most liquid, widely accepted across exchanges. Use Cases:
Trading: Default quote currency on platforms like Binance and Coinbase.
Remittances: Fast, low-fee transfers via TRON.
Safe Haven: Popular during market downturns. Concerns: Historical questions over reserve transparency, though efforts toward compliance have improved.
USDC (USD Coin)
Traits: Issued by Circle with regular audits; compliance-first approach. Use Cases:
DeFi: Lending, yield farming on Aave, Compound, etc.
Enterprise Payments: Integrated by Visa, Mastercard.
Multi-chain Support: Available on Ethereum, Solana, Polygon, and more. Strength: Institutional trust and audit transparency.
DAI
Traits: Fully decentralized, censorship-resistant. Use Cases:
DeFi Ecosystem: Liquidity provision, yield farming on Uniswap, Curve.
Private Transactions: No KYC required.
Decentralized Borrowing: Mint DAI by collateralizing ETH. Risks: Liquidation risk during volatility.
USD1
Traits: Issued by World Liberty Financial, focused on the Web3 economy. Use Cases:
Web3 Payments: NFTs, GameFi, social platforms.
Emerging DeFi: Supports staking and liquidity mining.
Microtransactions: Low fees ideal for frequent, small payments.
Potential: Strong growth expected due to Web3-native integrations.
Part 7: How to Manage Your Stablecoins？
After understanding what is stablecoin, the next step is secure management. TokenPocket is your go-to digital wallet for this.
TokenPocket's Advantages:
Multi-Chain Support: Manage stablecoins across various chains (Ethereum, BNB Chain, TRON, etc.) from one place, simplifying your operations.
Top-Tier Security: With robust encryption, local private key storage, and biometric options, your assets are safe. Hardware wallet support adds extra protection.
Seamless Transactions: Easily swap stablecoins or bridge to fiat. The built-in DApp browser facilitates quick trades via decentralized exchanges (DEXs).
Web3 Gateway: Explore DeFi, NFTs, and blockchain games directly through the DApp browser, maximizing your stablecoin's utility.
User-Friendly: Designed for all users, TokenPocket offers an intuitive interface for easy asset management.
In essence, TokenPocket is the ideal choice for managing your stablecoins and other cryptocurrencies due to its powerful features, strong security, and user-friendly design.
FAQs of Stablecoin
1. Is USD a stablecoin?
No, USD (United States Dollar) is a traditional fiat currency. Stablecoins are cryptocurrencies pegged to assets like the USD to maintain stable value, but they are distinct digital assets.
2. Is Bitcoin a stablecoin?
No, Bitcoin (BTC) is not a stablecoin. It's known for significant price volatility and is not designed to maintain a stable value like stablecoins.
3. Are stablecoins safe?
Safety varies. Fiat-collateralized stablecoins (USDT, USDC) are safer if fully backed and transparent. Crypto-collateralized (DAI) offer some safety via overcollateralization but have smart contract risks. Algorithmic stablecoins are generally riskiest due to reliance on complex mechanisms. Always research individual stablecoins for their specific risks and transparency.
Conclusion
In conclusion, understanding what is stablecoin is crucial for navigating the evolving crypto landscape. With their price stability, stablecoins offer a reliable bridge between traditional finance and the decentralized world. For a secure and user-friendly experience managing your stablecoins and other digital assets, we highly recommend TokenPocket - an excellent . Its comprehensive features make it an ideal choice for both new and experienced crypto users.
Click to View: How to choose your FIRST stablecoin wallet?
Disclaimer
Cryptocurrency investment and usage involve market, legal, and technical risks. Please exercise caution. Always keep your seed phrases and private keys secure and never disclose them to anyone. This article is for educational purposes only and does not constitute investment advice. Before using stablecoins or wallets, conduct your own research and ensure compliance with local laws and regulations.
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