Stablecoins.
Dollars with extra steps and counterparty risk.

Section 1 · What stablecoins are

A stablecoin is a cryptocurrency designed to maintain a stable value relative to a reference asset, almost always the US dollar.

Why they exist: crypto markets are volatile. Traders and users wanted a way to stay in the crypto ecosystem without holding volatile assets. Stablecoins let you move value quickly across blockchains without converting to bank accounts.

Fiat-backed

Holds actual dollars or short-duration Treasuries in reserve. Examples: USDT (Tether), USDC (Circle). You send $1, you get 1 stablecoin. The issuer holds $1 in reserve. Redeem the token, get $1 back. Risk: trust the issuer actually has the reserves.

Algorithmic

No reserves. Uses algorithms and incentive mechanisms to maintain the peg. Most famous failure: TerraUST/LUNA collapsed in May 2022, wiping out approximately $40 billion in value verify×DON'T TRUST, VERIFYClaim: Terra/LUNA collapse in May 2022 wiped out approximately $40 billion in market value.Verify at: CoinGecko Terra Luna Classic page ↗Market-cap loss can be reconstructed from CoinGecko/CoinMarketCap historical data. SEC enforcement actions document the timeline.. Most algorithmic stablecoins have been discredited or failed.

Crypto-backed

Over-collateralized with other crypto assets. Example: DAI (MakerDAO), backed by Ethereum and other crypto at over 100% collateral. Risk: if the underlying crypto falls sharply, the system can become undercollateralized.

Section 2 · The scale

As of 2026 stablecoins represent over $200 billion in market capitalization verify×DON'T TRUST, VERIFYClaim: Stablecoins represent over $200 billion in total market capitalization as of 2026.Verify at: CoinMarketCap stablecoin sector ↗CoinMarketCap and CoinGecko both maintain live aggregate market-cap data for the stablecoin sector..

• Tether (USDT): the largest stablecoin, issued by Tether Limited based in the British Virgin Islands.
• USDC: issued by Circle, based in the US, with more transparent reserves and US regulatory oversight.

Section 3 · The risks most users miss

Reserve risk (USDT specifically)

Tether has historically been opaque about its reserves and has settled multiple regulatory cases over reserve misrepresentation verify×DON'T TRUST, VERIFYClaim: Tether settled enforcement cases with the CFTC and the New York Attorney General over reserve misrepresentation.Verify at: CFTC Tether settlement (2021) ↗ · NY AG Tether/Bitfinex settlement (2021) ↗Settlement documents are public on each agency's website.. Tether now publishes quarterly attestations, which are not full audits. The unresolved question: does $1 of actual dollar-equivalent assets back every USDT? If not, a bank run on USDT could cause a cascade failure.

Freezing risk

Both USDT and USDC can freeze individual wallets. Tether has frozen wallets at law-enforcement request. Circle froze USDC wallets connected to Tornado Cash after OFAC sanctions in August 2022 verify×DON'T TRUST, VERIFYClaim: Circle froze USDC wallets connected to Tornado Cash after OFAC sanctioned the protocol in August 2022.Verify at: Circle statement on OFAC action ↗Circle published the freeze decision publicly.. This is a fundamental difference from Bitcoin: no one can freeze your Bitcoin wallet.

Regulatory risk

Stablecoins are under active regulatory scrutiny in the US and EU. Potential outcomes range from licensing requirements (the EU MiCA framework took effect in 2024) to outright prohibition of certain issuers.

De-pegging risk

Even fiat-backed stablecoins can lose their peg in market stress. USDC briefly de-pegged to $0.87 in March 2023 when Circle disclosed $3.3 billion in reserves held at Silicon Valley Bank during its collapse verify×DON'T TRUST, VERIFYClaim: USDC de-pegged to $0.87 in March 2023 due to SVB exposure of $3.3B.Verify at: Circle update on USDC and SVB ↗Circle disclosed exposure publicly. Historical USDC price data confirms the de-peg trough..

Section 4 · The Bitcoin perspective

Bitcoin holders are generally skeptical of stablecoins for one fundamental reason: a stablecoin is a dollar with extra steps. You hold a dollar. You exchange it for a token that represents a dollar. The token is controlled by a centralized issuer who can freeze it, who may or may not have the backing they claim, and who operates under government jurisdiction. If you wanted dollars, you could just hold dollars.

The use case stablecoins fill (moving value quickly across crypto rails) is real. The Lightning NetworkLightning NetworkA faster lane built on top of Bitcoin. Lets two people pay each other instantly, for tiny fees, by keeping a running tab between them off Bitcoin's main public ledger.Full definition fills a similar function for Bitcoin payments without counterparty risk. See Lightning Network.

The honest position

• Stablecoins are useful infrastructure in the crypto ecosystem.
• They are not sound money and they are not censorship-resistant.
• For long-term savings, stablecoins are not a substitute for Bitcoin.
• For short-term operations in the crypto ecosystem, they serve a real function.
• In countries with collapsing currencies (Argentina, Nigeria, Turkey), USDT and USDC compete with Bitcoin for the role of dollar-substitute. Both are used. Bitcoin's exit is more complete; stablecoins are more accessible.