Stablecoins are digital assets that are meant to keep their value consistent. They are commonlytied 1:1 to fiat currencies (mainly USD), commodities (like gold), or algorithms. The market isworth about $255 billion in 2025 and is tied to the US dollar almost 99% of the time. Best uses:sending money home, getting on and off ramps, parking money in the treasury, and protectingagainst local inflation. The biggest risks are de-pegs, lack of transparency in reserves, exposureto counterparties, regulatory restrictions, and scam rails. New laws, such the US GENIUS Actand the EU MiCAR, say that reserves must be completely backed and that there must be morecontrol. Choose options that are clear and backed by fiat money; stay away from yields thatseem too good to be true.

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What is a stablecoin?
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A stablecoin is a type of cryptocurrency that is designed to follow a reference value, which isusually a fiat currency like the US dollar, a commodity like gold, or a group of assets. Reserves(cash, Treasuries, gold, crypto collateral) or algorithms that change the amount of supply areused to try to keep things stable.

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Why stablecoins are important
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Trading and treasury: a low-volatility "cash" leg for crypto markets and a place to park moneybetween trades.
Cross-border payments: Sending money across borders is faster and cheaper using asmartphone; this is important for developing countries.
Inflation hedge (local): In countries with strong inflation (like Argentina, Turkey, and Venezuela),coins tied to the US dollar operate as fake dollars.
Humanitarian rails: where banking is limited, aid is given out and NGOs are paid.

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The four primary types and how they hold the peg
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Backed by fiat: These coins keep their peg by keeping cash and short-term securities (usuallyT-Bills) with named custodians, which lets them be redeemed at par. Think about USDT, USDC,PYUSD, and other currencies that aren't USD, such EURT and EURS. The good things are thatit's easy to use and has a lot of liquidity. The bad things are that it can run like an MMF duringcrisis, the reserves are hard to see, and it can be concentrated at banking partners.
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Commodity-backed: Pegs follow assets like gold or oil that are kept by third-party custodians,and sometimes they can be redeemed in person. XAUt (Tether Gold) and PAXG are twoexamples. They give you access to commodities on-chain, but they also come with custody andaudit issues, possible redemption problems, and sensitivity to shocks in the commodity market.
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Crypto-collateralized: Issuers use smart contracts to lock up volatile crypto (typically over-collateralized, e.g., ~155%) to make a token that tracks the dollar. DAI, sUSD, and LUSD areexamples of this method. Programmability and decentralization are two benefits. Collateralvolatility, oracle failures, liquidation cascades, and smart-contract exploits are some of the risks.
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Algorithmic (or partial-reserve): Code controls pegs by changing the amount of supply, usuallywith a linked token. USDD, Celo Dollar, and the now-defunct UST are all examples. Theypromise to be capital-efficient, but they can fall apart when confidence drops, which makesthem susceptible to "death spiral" dynamics and policy pushback.

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The best application cases that have real-world benefits
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Remittances: Lower fees and almost quick settlement compared to old systems; very useful forsending money from one country to another.
Merchant settlement: Freelancers and e-commerce businesses bill in USDC/USDT and thenchange it to their native currency later.
Treasury management: Short-term parking between FX and crypto positions without having towait for the bank.
Financial access: On-chain dollars where banking is limited.

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Stablecoin vs. CBDC
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Private companies or protocols generate stablecoins, which try to track a reference asset viareserves or algorithms. Their performance depends on the quality of the counterparty, marketliquidity, and code security. Redemption, when available, depends on the policies of the issuerand their financial partners. Innovation tends to happen quickly because it is driven by themarket. CBDCs, on the other hand, are debts of central banks. They are legal-tender digital cashthat is backed by the government, governed by public policy, and has the complete monetarytoolset behind them. They take longer to get to market, but they have the legitimacy of asovereign and a clear settlement finality. In short, stablecoins are programmable, cross-border-friendly private money that comes with private-sector risk. CBDCs, on the other hand, are digitalstate money that comes with policy certainty and regulatory guardrails.