Stablecoins, Crypto Assets with the Most Stable Value
What is Stablecoin?
A stablecoin is a type of crypto asset engineered to maintain a stable value by pegging its worth to another asset, such as a fiat currency or a commodity. To ensure this price stability, stablecoins typically utilize the collateral of another asset as a 1:1 benchmark.
For instance, the stablecoin USDT is designed to have a 1:1 value with the US dollar, which serves as its underlying asset. Consequently, one USDT should always be equivalent in value to one US dollar. To uphold this parity, Tether, the issuer of USDT, is expected to maintain reserves of US dollars equal to the total amount of USDT in circulation.
It’s important to note that this stability doesn’t eliminate all price fluctuations, but rather aims to keep the stablecoin’s price closely aligned with the price of its underlying asset. The emergence of stablecoins has introduced a new dynamic to the crypto asset industry, particularly given the inherent volatility of other cryptocurrencies.
Types of Stablecoins
The following are some types of stablecoins based on the assets they are based on:
- Currency-based Stablecoins
These stablecoins derive their value from fiat currencies like the United States dollar or the Indonesian Rupiah. Issuers of currency-based stablecoins maintain reserves of assets in the form of the pegged fiat currency to ensure the stablecoin’s price mirrors that of the underlying asset.
USDT and USDC are two prominent examples of currency-based stablecoins, both maintaining a 1:1 peg to the United States dollar.
To ensure the integrity of their reserves, stablecoin issuers often undergo regular audits by independent public accounting firms. This practice aims to ensure proper governance and safeguard against financial risks.
Currency-based stablecoins also serve as a crucial bridge connecting traditional finance with the burgeoning cryptocurrency and blockchain industries.
- Commodity-based Stablecoins
Certain stablecoins achieve price stability by basing their value on commodities, with gold being a notable example. For gold-based stablecoins, the issuer holds physical gold bullion or invests in gold-backed assets as their reserve.
PAXG and XAUT are two well-known commodity-based stablecoins pegged to the price of gold. Specifically, each PAXG and XAUT token represents ownership of one troy ounce of gold.
Commodity-based stablecoins offer investors the advantage of buying fractional ownership in commodities. Furthermore, some commodity stablecoins provide the option to redeem their stablecoin holdings for the underlying physical commodity.
- Crypto Asset-based Stablecoins
This category of stablecoins uses other cryptocurrencies as their reserve asset. Unlike fiat currencies or commodities, which tend to exhibit greater price stability, utilizing cryptocurrencies as reserves introduces a higher risk of volatility. Consequently, crypto assets used as reserves for these stablecoins are typically overcollateralized, meaning a higher value of reserves is maintained compared to the value of the stablecoins issued.
To maintain a stable value, the value of the crypto assets held as collateral must exceed the value of the stablecoins being created. For instance, $2 million worth of crypto assets might be locked as collateral to issue $1 million worth of a crypto asset-backed stablecoin. If the value of the collateralized crypto asset drops by a significant margin (e.g., 50%), the collateral may be liquidated to ensure the stablecoin maintains its 1:1 peg with the US dollar.
A prime example of a cryptocurrency-backed stablecoin is DAI, which aims to maintain a 1:1 value with the US dollar. Maker, the issuer of DAI, utilizes Ethereum (ETH) and other cryptocurrencies as collateral, maintaining a collateralization ratio of at least 150% against the 100% supply of DAI circulating in the market.
Advantages of Stablecoins
Stablecoins offer several key benefits:
- Low Volatility
By being pegged to a stable asset like the US dollar or gold, stablecoins exhibit significantly less price fluctuation compared to other cryptocurrencies.
- As a Hedging Asset
Their high liquidity and the ease and speed of transactions make stablecoins valuable as hedging assets during periods of market turbulence.
- Fast and Liquid
Stablecoins possess high liquidity and can be bought and sold almost instantaneously.
- Global Access
Currency-based stablecoins facilitate the seamless sending and receiving of funds across international borders.
Stablecoin Adoption
The popularity and adoption of stablecoins have experienced rapid growth in recent years. According to data from DefiLlama, as of May 9, 2025, there are over 240 fiat currency-based stablecoins with a combined market capitalization exceeding $242.8 billion US dollars, representing an 86% increase year-over-year.
Governments in major economic regions are also providing regulatory frameworks for stablecoins. The European Union, through its Markets in Crypto-Assets (MiCA) regulation, has established guidelines for their operation. Similarly, the United States is in the process of developing regulations for stablecoins through legislative proposals like the StableAct and GeniusAct. This regulatory support from key global players demonstrates an open and increasingly accepting stance towards stablecoins.
The growing adoption rate of stablecoins is further evidenced by the exploration of partnerships between major payment processors like Visa and Mastercard with crypto or stablecoin companies to offer stablecoin-based payment solutions. Furthermore, global financial institutions predict a continued increase in the supply of stablecoins in the coming years, underscoring the potential for even wider adoption.