Stable Coins: why are they critical for the crypto market?

The cryptocurrency market is known for its volatility. Bitcoin can jump by 10% in a day, Ethereum fluctuates even more, and new altcoins are completely unpredictable. Against this backdrop, stablecoin stands out as an anchor of stability, tied to a reliable asset. What does this mean in practice? In simple terms: a stablecoin is a coin whose price is fixed. Usually to the dollar, euro, or precious metal.

Why does Crypto need stability?

Imagine a coffee shop that decided to accept payments in BTC. On Monday, a customer pays 0.01 bitcoin for coffee worth $5. On Tuesday, the rate drops by half — and the bitcoin received is now worth $2.5. By Wednesday, bitcoin recovers, but the damage has already been done. The profit has evaporated, and financial management has become impossible.

Stablecoins solve this problem radically. Instead of a volatile coin, the company can receive payments in TUSD or DAI — and the price will remain unchanged.

For investors, this means the opportunity to lock in profits without withdrawing money to fiat. Traders can enter and exit positions instantly, converting assets into stablecoins directly on the blockchain. International transfers become cheap and fast—money moves in a peer-to-peer network without intermediaries.

How does a stablecoin remain a cheap dollar?

The main question: why won't the stablecoin drop in price like an ordinary crypto? The answer lies in the binding mechanism. There are three fundamentally different approaches.

Stablecoin backed by fiat

This is the simplest way. Each coin is backed by a real dollar in reserves. You deposit $1 — you receive TUSD. Want to get back $1 — you burn TUSD. Direct exchange, no magic.

Pros: clear even to a child, maximum simplicity. Cons: requires a centralized reserve storage, and you need to trust the issuer that the money is really there. Some stablecoins publish monthly audits, others only partial reports.

Stablecoin backed by crypto

The logic here is more complex. Another cryptocurrency is used as collateral — for example, ETH. But crypto is volatile, so significantly more collateral is needed. DAI requires 150% collateral: to obtain 100 DAI, you need to deposit cryptocurrencies worth $150.

Smart contracts control the entire process. You open a CDP ( collateralized debt position ), deposit collateral, and receive DAI. The price of DAI drops below $1? The system automatically incentivizes people to return coins ( they are worth less than a dollar, but are fully collateralized ). The price rises above $1? People start creating new DAI, increasing the supply.

This mechanism operates on game theory and the behavior of participants. Each acts in their own interest, but ultimately the system reaches equilibrium. DAI is governed by the MakerDAO community through the voting of MKR coin holders.

Algorithmic stablecoin - a controversial hybrid

This is an experimental approach. No collateral, no fiat reserves. Instead, the algorithm automatically adjusts the number of coins in circulation.

Price fell? The algorithm burns coins, reducing supply. Price rose? New coins enter circulation, putting downward pressure on the price.

On paper, it makes sense. In practice? Such systems often break down, especially during a market crash when everyone panics at the same time. The history of Crypto is full of examples of failed algorithmic stablecoins that lost their peg and never returned to normal price.

Who and when needs stablecoins?

For traders: this is a parachute. During a market downturn, you can convert your portfolio into stablecoins and ride out the storm. When fears subside, buy cheaper. No fees for fiat deposits and withdrawals, everything is right here on the exchange.

For companies: a way to accept payments without being plagued by volatility. Stablecoins allow businesses to operate in cryptocurrencies seriously, rather than like in a casino.

For banks and funds: a tool for hedging the portfolio. Part of the funds in stablecoins — part in active assets. This reduces overall risk but keeps money ready for investments.

For international transfers: especially in countries with unstable currency. Transferring dollars via stablecoin is cheaper and faster than through SWIFT.

What problems remain?

Stablecoins are not a panacea. Their risks are real.

Problem number one: the peg is not guaranteed. It might seem that if a coin is backed by a dollar, it will never drop below that. In practice, this doesn't work. Luna and Terra created a graveyard of deceived investors. Even big projects sometimes lose their peg for a short time.

Problem number two: opacity of reserves. Not all issuers publish complete data on what each coin is truly backed by. Some hide details, while others simply do not conduct regular audits.

Problem number three: centralization. Fiat-backed stablecoins hold reserves in one organization. It may be subject to regulation, freeze accounts, or go bankrupt. The user relies on trust in the issuer and its financial stability.

Problem number four: governance. Crypto-backed stablecoins are often governed by the community. This is democratic, but incompetent voting can ruin the project. Participants vote for their own interests rather than for the stability of the system.

How do regulators view stablecoins?

Regulators around the world are closely monitoring stablecoins. This makes sense: they combine the properties of fiat currency and Crypto. They can be used for real payments, international transfers, and even replace national currencies.

Some countries are already preparing their own versions - so-called CBDCs (central bank digital currencies). Russia, China, and the USA are testing their options.

The issuance of stablecoins in the future will likely require regulatory approval and licensing of the issuer. This will reduce risks but add bureaucracy.

Conclusion: stablecoins are here to stay

Stablecoins are not a trend, but a necessity. They are already embedded in the infrastructure of Crypto. Exchanges operate on them, transfers go through them, and portfolios are managed with them.

But remember: this is still a cryptocurrency with all its risks. The project can go bankrupt, reserves can evaporate, and the peg can be lost. Before using stablecoins, study the specific project, its audits, and the team's history. Diversify: don't put all your eggs in one basket. And always remember the main rule of Crypto: invest only what you are willing to lose.