A beginner's guide to stablecoins — what they are, how they hold a dollar peg, the main types, real depeg events, and mistakes to avoid.
A stablecoin is a cryptocurrency built to hold a steady price, almost always $1, instead of bouncing around the way Bitcoin or Ethereum do. Most stablecoins do this by tying their value to a real-world asset — typically the US dollar — through reserves, collateral, or an algorithm. On a technical level a stablecoin is a token like any other, moving between wallets on a blockchain, but its entire purpose is to not be exciting: one stablecoin should be worth one dollar today, next week, and next year.
Beginners should care about stablecoins because they quietly do most of the heavy lifting in crypto. When you trade Bitcoin for Ethereum on an exchange, you're often routing through a stablecoin trading pair behind the scenes. When someone sends money across borders without a bank wire, they're frequently using a stablecoin. And when someone in a country with a volatile local currency wants dollar-denominated savings without a US bank account, a stablecoin is often the only realistic way in. None of this requires believing crypto prices will go up — stablecoins are the "boring" plumbing that makes the rest of crypto function.
The three big reasons stablecoins exist are worth remembering: they give traders a stable unit to park value in between trades (a trading pair), they let people move money across borders faster and often cheaper than traditional remittance rails, and they give people anywhere in the world a way to hold dollar-like value on their phone even if they can't open a US bank account. Understanding stablecoins is a prerequisite for almost everything else in crypto, from using an exchange to exploring DeFi.
Stablecoins didn't arrive as one clean idea — they emerged from several competing experiments in the same few months of 2014, each trying to solve crypto's volatility problem differently. The earliest was BitUSD, launched on the BitShares blockchain on July 21, 2014, by Charles Hoskinson and Dan Larimer, who would go on to co-found Ethereum and EOS respectively. BitUSD tried to hold its dollar value using crypto collateral locked in smart contracts — an idea that was ahead of its time but suffered from thin liquidity and never gained broad adoption. NuBits followed in September 2014 with a different, more fragile approach: a dual-token seigniorage model that ultimately collapsed when confidence broke down.
The design that actually won the market arrived in October 2014, when a token called Realcoin launched on the Omni layer built on top of the Bitcoin blockchain. It was renamed Tether (USDT) that November. Tether's pitch was disarmingly simple compared to its crypto-collateralized rivals: for every token issued, the company said it held one US dollar in reserve. Tether began trading on the Bitfinex exchange in January 2015, and over the following years it became the default settlement currency on crypto exchanges worldwide, particularly useful for traders in places without easy access to US dollar banking (Protos; BeInCrypto). Tether has also faced years of scrutiny over whether its reserves were as solid as claimed, including a 2021 settlement with US regulators over misleading statements about its backing.
As Tether grew, competitors emerged to address the trust question directly. In 2018, Circle and Coinbase formed the Centre Consortium and launched USD Coin (USDC), positioning it as a more transparent, regularly-audited alternative backed by cash and short-term US Treasuries. Around the same time, a very different model was taking shape on Ethereum: MakerDAO, founded by Rune Christensen, launched Single-Collateral DAI in December 2017. Instead of trusting a company's bank account, DAI let users lock crypto (initially only ETH) into smart contracts as collateral to mint a dollar-pegged token — a decentralized, on-chain alternative to fiat-backed coins. DAI proved surprisingly resilient in its first year, holding its peg even as ETH's price fell more than 80% (Wikipedia).
The industry's biggest wake-up call came in May 2022, when TerraUSD (UST) — an "algorithmic" stablecoin that maintained its peg through a minting relationship with a sister token called LUNA, rather than through hard collateral — spiraled to worthlessness in about a week, destroying tens of billions of dollars and dragging down much of the broader crypto market with it. The event permanently changed how the industry and regulators think about stablecoin design, and it's the reason algorithmic stablecoins now carry a permanent asterisk of risk in most beginners' minds. In the years since, momentum shifted toward clearer rules: after years of proposals, the United States passed its first comprehensive federal stablecoin law, the GENIUS Act, which President Trump signed on July 18, 2025, establishing a licensing and reserve framework for "payment stablecoins" issued in the US (The White House; Reuters).
The first three sections are free. Drop your name and email to unlock the rest of this guide instantly — we'll also send you the designed PDF edition and you'll join The CGH Brief. No spam, unsubscribe anytime.