What Are Stablecoins and Why They Matter for Blockchain — ASCN

If you’ve ever heard of Bitcoin or Ethereum, you already know how wild the price swings can get. One week it’s up 40%, the next it’s in freefall. That volatility—those sudden price spikes and crashes—is what scares most newcomers away from crypto.

But what if there was a cryptocurrency that didn’t move much at all? That stayed, well, stable? Welcome to the world of stablecoins.

So, what’s a stablecoin anyway?

Before diving into how they work, let’s clear up the basics. Why were stablecoins even invented? How are they different from the usual coins like BTC or ETH? And why do they matter so much in the fast-growing blockchain world?

At its core, a stablecoin is a digital asset pegged to something steady—like the US dollar, euro, gold, or even oil. Most of the time, though, it’s the dollar.

Think of it this way: a stablecoin is a digital version of a dollar that lives on the blockchain. Its job is to bring predictability and make everyday crypto transactions practical. These tokens are issued either by companies or decentralized protocols, usually following pre-set rules or algorithms.

How it’s different from regular crypto

The short answer: stablecoins stay put while Bitcoin and Ethereum swing like a pendulum.

A few key contrasts:

• Price stability. The peg keeps most stablecoins right around $1, give or take a cent.

• Use in payments. Because of that stability, people actually use them like money.

• Backed by assets. Behind every legitimate stablecoin stands something tangible—cash, bonds, or crypto reserves.

In simple terms: Bitcoin is digital gold; stablecoins are digital dollars. And that changes the game.

Why stability matters in a chaotic market

The crypto market isn’t for the faint-hearted. Between 2022 and 2024, we saw 300% rallies followed by 90% crashes. In times like that, stablecoins become a safe harbor.

Traders “park” their funds in stables to avoid losing value during dips. Investors use them to lock in profits. And DeFi platforms rely on them to issue loans and manage staking pools.

Stability isn’t just convenient—it’s foundational. It’s the quiet engine keeping the crypto economy running.

Why stablecoins blew up in 2025

By 2025, stablecoins had gone from niche to necessity. After the whole Terra/UST meltdown (we’ll get to that), people became a lot more cautious about where they store value.

A few reasons behind the boom:

• The explosion of DeFi and Web3, both of which rely on stable assets.

• Tightening regulations that pushed investors toward safer, more predictable coins.

• Inflation in parts of Eastern Europe and the CIS, where holding a “digital dollar” suddenly made a lot of sense.

And, honestly, because they’re just practical. You can send $1,000 across the world in minutes and lose nothing to exchange rates or wire fees.

How do stablecoins keep their $1 peg?

That’s the million-dollar question. How do they actually hold the line? Why doesn’t a USDT or USDC bounce around like any other token?

It comes down to collateral and mechanisms of trust.

Pegging to fiat (usually USD)

The most common setup is a direct peg: 1 USDT = 1 USD.

The issuer mints a new stablecoin only when someone deposits a matching dollar into their bank account. That’s what’s known as full-reserve backing. If you later want your money back, you return the token and get your dollar.

Some stablecoins are linked to euros (like EUROC), yuan (CNHC), or even gold (PAXG), but USD remains the king of pegs.

Three main collateral models

1. Fiat-backed. Every token equals real money in a bank. That’s how USDT and USDC operate.

2. Crypto-backed. Instead of cash, these hold reserves in crypto like ETH. DAI is the classic example.

3. Algorithmic. Here things get trickier: no real backing, just code that mints or burns tokens to stabilize price. Risky? Absolutely.

The simpler the setup, the higher the trust. That’s why centralized fiat-backed coins still dominate the market.

Issuing and redeeming stablecoins

When users deposit fiat, new tokens are minted—this is the issuance process. Redeeming works the opposite way: you give back USDC or USDT, and the issuer returns dollars.

Ideally, there should always be a one-to-one match between coins in circulation and assets in reserve. If a project claims that but can’t prove it, red flags start waving.

Transparency: who’s playing fair?

Here’s where things get interesting. Not all stablecoins are equally transparent.

• USDC releases monthly audit reports from Grant Thornton.

• DAI is fully on-chain—you can literally see its reserves in the blockchain.

• USDT, on the other hand, has a long history of being… let’s say, economical with details.

After a few scandals between 2023 and 2024, transparency became a must. By 2025, regular audits and open on-chain proof became key trust signals.

Types of Stablecoins

Let’s look closer at the main kinds of stablecoins — not just how they’re built, but how they actually behave out in the wild. Each model has its strengths, its quirks, and, as crypto has taught us time and again, its breaking points.

Fiat-Backed Stablecoins (USDT, USDC, BUSD)

These are the classics — simple, reliable, and still the backbone of the market. Each token is backed by traditional fiat assets held in real bank accounts.

• USDT (Tether) — the oldest and most widely used stablecoin on the planet. Despite periodic controversy about transparency, it remains dominant in trading volume and liquidity.

• USDC (USD Coin) — issued by Circle, considered the clean and compliant alternative. It’s fully regulated and often used by institutional investors.

• BUSD — once Binance’s own stablecoin, delisted in 2024 after regulatory pressure, but still remembered as one of the more transparent projects.

These coins are easy to understand: one token equals one dollar, always redeemable with the issuer. The trade-off? Centralization. The company behind each coin has full control — they can freeze funds or comply with government orders at any moment.

Bottom line: they’re practical, liquid, and user-friendly, but you’re trusting a company, not a blockchain.

Crypto-Backed Stablecoins (DAI, crvUSD)

Now we step into DeFi territory. Here, no banks or traditional assets are involved — only crypto.

DAI, built by MakerDAO, is the pioneer. To mint DAI, users lock up other crypto assets (like ETH or wBTC) as collateral. Typically, you must deposit more than you borrow — say, $150 worth of ETH to mint $100 in DAI. This over-collateralization protects against market swings.

If the collateral’s value falls too much, the system automatically liquidates it to maintain the peg. It’s algorithmic, but with real assets behind it.

Another rising star in 2025 is crvUSD, created by Curve. It uses a more dynamic system of collateral management, experimenting with how crypto-backed stability can adapt to volatility.

Pros:

• Fully decentralized and censorship-resistant.

• Transparent: all collateral and smart contracts are visible on-chain.

Cons:

• Complexity — you need to understand DeFi mechanics.

• Exposure to crypto volatility.

Still, for those who care about sovereignty and transparency, crypto-backed stablecoins are the purest expression of what blockchain was meant to be.

Algorithmic Stablecoins (UST, USDN, and others)

Here’s where things get risky — and fascinating. Algorithmic stablecoins don’t rely on reserves at all. Instead, they use smart contracts to automatically adjust the supply of tokens to keep prices stable.

The idea sounds elegant: when the price rises above $1, new tokens are minted; when it falls below, they’re burned. In theory, that keeps everything balanced. In practice, it often doesn’t.

The UST Collapse (2022)
Terra’s UST was the poster child of algorithmic stables — until it imploded. Its peg depended on the value of another token, LUNA. When the market lost confidence, both crashed in a death spiral that wiped out over $40 billion.

USDN (Neutrino) from Waves followed a similar path — big promises, but couldn’t withstand pressure when investors rushed for the exit.

The lesson? Pure math can’t replace real collateral. Confidence is the real peg.

Most Popular Stablecoins in 2025

By 2025, the stablecoin ecosystem has matured into a multi-trillion-dollar sector. Some names dominate global trade and DeFi, while others serve niche purposes or regional markets. Let’s break down the leaders and what sets each apart.

USDT — The Old Giant That Still Rules

USDT is the undisputed heavyweight of stablecoins — the one everyone’s heard of and most traders rely on.
Born back in 2014, Tether was the first to link crypto to fiat, effectively creating the concept of a digital dollar.

It remains the most liquid asset in crypto markets. Every major exchange and DeFi protocol supports it. However, Tether’s history hasn’t been spotless. For years, critics questioned its transparency, reserve composition, and regulatory standing.

By 2024–2025, the company started releasing quarterly audits and moved much of its backing into U.S. Treasuries, which improved confidence. Yet, the debate over whether USDT is too big to fail still lingers.

In short: it’s the most used, most powerful, and still the most controversial stablecoin in the world.

USDC — The Clean, Corporate Alternative

If USDT is the wild child of crypto, USDC is its polished corporate cousin. Issued by Boston-based Circle in partnership with Coinbase, it’s fully regulated under U.S. law and publishes monthly attestation reports verified by Grant Thornton.

Institutions, fintech startups, and payment processors tend to prefer USDC precisely because of its regulatory clarity and reputation. It’s deeply integrated into payment networks and DeFi platforms alike.

Its only drawback is regional bias: it’s more popular in North America and Europe, while in Asia and the CIS, USDT still dominates.

Verdict: safe, transparent, and corporate-friendly — the “blue chip” stablecoin.

DAI — The Decentralized Pioneer

DAI is what many in DeFi consider the “true” stablecoin — no company, no central authority, just smart contracts and collateral locked on the blockchain.

Anyone can mint DAI by depositing crypto into MakerDAO’s vaults. It’s over-collateralized, meaning the system always holds more in assets than DAI in circulation. This creates resilience, though it also makes it capital-intensive.

In recent years, MakerDAO expanded collateral options to include real-world assets (like tokenized U.S. Treasuries), improving stability and yield.

For users who value decentralization over convenience, DAI is the go-to stablecoin.

TUSD — The Transparent Underdog

TrueUSD (TUSD) positions itself as a “fully transparent” alternative to Tether. Every minted token corresponds to an independently verified dollar, and proof-of-reserves data is available in real time.

It saw strong adoption on Binance during 2023–2024 when BUSD was being phased out. Since then, TUSD has maintained moderate market share, serving traders who want something simpler and verifiable.

However, occasional liquidity issues have limited its role in large-scale DeFi operations.

Summary: reliable, transparent, but not as widely integrated as USDT or USDC.

FRAX — The Hybrid Experiment

FRAX is one of the most interesting projects of the new wave. It combines traditional collateral (like USDC) with algorithmic controls to dynamically adjust supply and demand.

At its peak, FRAX represented the hope that algorithms could stabilize value without full collateral. After the UST disaster, Frax Finance adjusted its model — increasing reserve ratios and emphasizing transparency.

Today, FRAX remains a core asset in many DeFi platforms, bridging the gap between fully collateralized coins and experimental mechanisms.

Tagline: innovation with a dose of realism.

Who’s Leading the Market in 2025

Let’s take a quick snapshot of the current stablecoin landscape:

Name	Circulating Supply	Type	Primary Use
USDT	$160B+	Centralized (Fiat-backed)	Trading, liquidity, payments
USDC	$64B	Centralized (Fiat-backed)	Institutional transfers
DAI	$5.3B	Decentralized (Crypto-backed)	DeFi, staking, lending
TUSD	$490M	Centralized (Fiat-backed)	Alternative to USDT
FRAX	$298M	Hybrid (Partially algorithmic)	DeFi experiments

Centralized coins still dominate — they’re trusted, fast, and easy to use. But decentralized options like DAI and FRAX are quietly carving out their niche among DeFi users who value transparency and independence.

Where Stablecoins Are Actually Used

You might think they’re only for traders, but their utility goes far beyond speculation.

Trading and Market Liquidity

On nearly every crypto exchange — Binance, Bybit, OKX, Kraken — most pairs are denominated in USDT or USDC. Stablecoins make trading faster and simpler. No need to cash out to fiat every time you take profits.

Safe Havens for Volatility

During market chaos, traders “park” funds in stablecoins to protect their value. Even long-term holders use them to step out of risk temporarily without fully exiting the crypto space.

Global Payments and Remittances

Need to send money abroad? Forget wire transfers and exchange fees. Stablecoins make it instant and cheap. For freelancers, expats, and international startups, they’re becoming the default currency of the internet.

DeFi: Lending, Staking, Yield Farming

Stablecoins are the lifeblood of decentralized finance. Protocols like Aave, Curve, and Compound use them for loans, interest-bearing deposits, and yield farming. You can lend DAI, stake USDC, or join a liquidity pool — all while staying (relatively) shielded from price swings.

Stablecoins vs. Real Dollars

For millions of users, stablecoins have already replaced traditional bank accounts.

They offer:

• 24/7 accessibility with no intermediaries

• Global reach and instant transfers

• Privacy and self-custody (you own your keys)

But remember: blockchain doesn’t do refunds. Lose your private key, and your funds are gone forever. So with great freedom comes great responsibility.

Advantages and Disadvantages of Stablecoins

Stablecoins are often described as the best of both worlds — combining the speed of crypto with the stability of fiat. But like everything in this industry, the truth is more nuanced. Let’s take a realistic look at their strengths and weaknesses.

Advantages

1. Price Stability

The core value proposition. Unlike Bitcoin or ETH, stablecoins maintain a consistent price, typically pegged to the U.S. dollar. This makes them practical for everyday use, saving, and trading.

2. Speed and Accessibility

Stablecoin transactions are near-instant and available 24/7 — no weekends, no bank holidays, no intermediaries. You can send value across the globe in seconds, with minimal fees.

3. Integration with DeFi

DeFi protocols — from lending platforms to yield farms — rely heavily on stablecoins. They provide liquidity and act as a unit of account for decentralized economies.

4. Borderless Utility

Stablecoins are universal. Whether you’re in Argentina, Turkey, or Kazakhstan, you can hold digital dollars that retain their value regardless of local inflation or capital controls.

5. Transparency and Auditability

For projects like DAI or USDC, reserve data and collateral structures are publicly visible or regularly audited, offering a level of financial clarity most banks still can’t match.

Disadvantages

1. Centralization Risks

Fiat-backed coins like USDT and USDC depend on their issuers. These entities can freeze addresses, block transactions, or comply with political sanctions — effectively controlling user funds.

2. Regulatory Uncertainty

Governments are still figuring out how to classify and regulate stablecoins. New rules can disrupt markets or restrict cross-border use overnight.

3. Collateral Vulnerability

In crypto-backed systems, collateral value can drop quickly during market crashes, threatening the peg. Algorithmic stables face even greater fragility — as seen with Terra’s UST collapse.

4. Dependence on External Infrastructure

Most stablecoins depend on traditional banking systems to store reserves. If banks freeze accounts or deny services, the entire project can suffer liquidity shocks.

5. Potential for Mismanagement

Without rigorous audits, some issuers could underreport or misuse reserves — a concern that has haunted Tether for years.

When Stablecoins Fail: Key Lessons from History

Stablecoins promise reliability — but history shows that even the most “stable” systems can crumble when trust fades.

The Terra (LUNA/UST) Collapse

In 2022, the Terra ecosystem imploded in what became one of crypto’s most catastrophic events. UST’s peg relied on minting and burning LUNA — a mechanism that only worked while confidence remained high.
When panic hit, the algorithm couldn’t handle the mass redemptions. The price fell from $1 to a few cents within days, wiping out over $40 billion and thousands of investors.

Lesson: math and incentives alone can’t replace collateral or trust. Every system, no matter how elegant, needs a solid foundation of real value.

Tether’s Transparency Saga

Tether (USDT) has long been a lightning rod for debate. Critics questioned whether its reserves truly matched the circulating supply. While the company has since improved disclosures — publishing regular attestations and shifting to safer assets — questions about governance persist.
Still, USDT continues to dominate the market, proving that utility and liquidity often outweigh controversy.

Lesson: the market values convenience first — but transparency is what sustains longevity.

Freezing and Censorship Risks

In 2024–2025, both USDT and USDC began freezing wallets tied to sanctioned or suspicious activity. While this move satisfied regulators, it also reminded users that centralized stablecoins are not censorship-resistant.

Lesson: if your money depends on a company’s permission, it’s not fully your money.

Regulation: The New Frontier

By 2025, governments have turned their full attention to stablecoins. After the chaos of UST and the FTX scandal, regulators realized stablecoins weren’t just “crypto toys” — they’re a core part of global finance.

United States

The Stablecoin Transparency Act now mandates:

• 100% reserve backing in cash or U.S. Treasuries

• Monthly third-party audits

• Clear redemption procedures

Circle (USDC) has embraced the rules; Tether operates outside U.S. jurisdiction but aligns with similar transparency practices to maintain market confidence.

European Union

Under the MiCA (Markets in Crypto-Assets) framework, all stablecoin issuers in Europe must hold licenses, publish detailed reserve reports, and comply with anti-money laundering laws.

The result? A more transparent, but also more bureaucratic, environment — one that favors large, well-funded issuers.

CIS and Eastern Europe

In the Commonwealth of Independent States (CIS), approaches vary:

• Kazakhstan and Belarus have launched regulated crypto “sandboxes” to test digital assets.

• Russia, while not banning stablecoins, hasn’t formally recognized them as legal tender.

Despite this gray zone, stablecoins like USDT remain widely used for cross-border trade and P2P transactions — especially after new international payment restrictions.

CBDCs vs. Stablecoins — Competition or Coexistence?

Central Bank Digital Currencies (CBDCs) — like the digital yuan or digital ruble — are government-backed digital assets often compared to stablecoins. But in practice, they serve different purposes.

• CBDCs are centralized tools of monetary policy — controllable, programmable, and tightly regulated.

• Stablecoins are grassroots, global, and open — functioning across borders without government approval.

Rather than replacing each other, they’re likely to coexist. CBDCs will dominate official finance; stablecoins will thrive in decentralized, global ecosystems.

Some analysts even expect hybrid models — where CBDCs act as collateral for regulated, programmable stablecoins bridging both worlds.

Stablecoins in Russia: The Gray Zone

As of 2025, stablecoins sit in a legal limbo in Russia.
There’s no outright ban, but no official recognition either. Businesses can’t legally accept them as payment, yet individuals freely use them for savings, transfers, and crypto trading.

With tighter capital controls and limited access to international banking, stablecoins — especially USDT — have become an unofficial bridge to the global economy. P2P platforms and DeFi apps are their lifeline.

Frequently Asked Questions (FAQ)

What’s the difference between USDT and USDC?

USDT dominates in liquidity and global adoption, but USDC offers more transparency and stronger regulatory backing. Traders often hold both for flexibility.

Are stablecoins safe?

They’re more stable than most crypto assets, but not risk-free. Centralized ones rely on the issuer’s honesty; decentralized ones depend on code. Self-custody is always safest.

Can I earn income with stablecoins?

Yes. Through DeFi protocols, you can lend, stake, or provide liquidity — typically earning between 2% and 10% annually. Just remember: higher yield means higher risk.

How do I cash out?

Peer-to-peer platforms on Binance, OKX, and others let you sell stablecoins directly for fiat — fast, simple, and usually without traditional banking friction.

The Future of Stablecoins

Stablecoins began as a technical workaround — a way to escape crypto volatility — and evolved into the backbone of the digital financial system.

By 2025, they are:

• The core medium of exchange for DeFi and trading;

• A lifeline for users in inflation-hit economies;

• The bridge between traditional banking and blockchain finance.

The next phase will bring fewer but stronger stablecoins: fully audited, regulated, and transparent. Projects with vague backing or weak governance will fade away, while the survivors will become the digital dollars of Web3.

Final Thoughts — Stability as the Foundation of the Next Era

Stablecoins proved one thing: blockchain isn’t just about speculation. It can power real, reliable financial systems that work globally — faster, cheaper, and fairer than banks.

They’re the invisible infrastructure of Web3 — the steady heartbeat behind every trade, every DeFi loan, every on-chain dollar.

And if you’re exploring how to navigate this space — comparing USDT vs. DAI, setting up a secure wallet, or optimizing yield safely — ASCN.AI can help.
It provides clear, data-driven insights into stablecoins, helping you make informed, confident decisions without sifting through endless crypto noise.

Because in the end, stability isn’t a compromise — it’s the next revolution in finance.