Stablecoins
Stablecoins are digital dollars. Understanding what backs each one is the difference between using them safely and being surprised.
The three flavours
Fiat-backed (USDT, USDC) — every token is nominally backed by cash and short-term treasuries in a bank/custody structure. Depends on the issuer.
Crypto-backed (DAI) — over-collateralised by other crypto assets, managed by smart contracts. Depends on collateral quality and market liquidity.
Algorithmic — no external collateral, relies on mechanism design. Historically fragile (see TerraUSD).
Where the yield comes from
Stablecoins themselves don't pay yield. Yield comes from lending them, providing liquidity, or capturing perpetual-futures funding rates — each with its own counterparty and smart-contract risks.
How they can fail
Issuer insolvency, banking-partner failure, on-chain contract exploit, or a large de-peg event. The 2023 USDC de-peg during the SVB crisis is a case study in banking-partner risk.