If you’re not exactly a stranger to crypto, you may already know that digital currencies are not all cut from the same cloth. But as a newbie, you may not be able to see how crypto coins differ from one another.
One way to categorize and differentiate cryptocurrencies is by their method of valuation, which separates them into unbacked and backed assets, also known as stablecoins. These have become quite a prominent crypto subclass due to the advantages they offer. Many want to know how to buy USDC instead of Bitcoin and Ethereum, even if it doesn’t enjoy the same level of popularity as the two crypto giants, because it is said to be less fickle than the rest of its peers.
But are stablecoins truly as stable and safe as they’re advertised, or is this a false impression? Stick around if you want to find out.
Stablecoins at a glance
Let’s see what stablecoins are all about. The purpose behind their creation is as simple as it is bold: to offer a best of both worlds kind of scenario where they can deliver the speed, security, affordability, and freedom that cryptocurrencies are known for, but without the notorious volatility that is also typical of conventional digital currencies.
In order to ensure a more stable value, without compromising on core crypto features, stablecoins use pegging, which means they attach their value to that of another asset that is less likely to suffer major price fluctuations. In most cases, stablecoins use the US dollar for backing, since this is one of the strongest and most liquid fiat currencies in the world, but they can also use commodities, such as gold or oil, other cryptocurrencies, or algorithms to stabilize their price.
Can stablecoins guarantee stable prices?
Since stability is the main trait of stablecoins (it’s basically in their name), that’s what most people expect when they purchase these types of assets. Although digital currencies are famous for their high-risk, high-reward nature, not everyone who wants to use or invest in crypto is searching for quick gains or is willing to expose themselves to the possibility of major losses. That’s why they choose stablecoins, thinking this is the safest way to get into crypto, but is it really?
In theory, the pegging method should be able to appease volatility to some extent. In practice, the level of stability that stablecoins can ensure largely depends on the method they employ for backing. Those that maintain a 1:1 relationship with strong real-world assets, such as the US dollar, euro, or gold, are more likely to maintain a more consistent price. Those that resort to algorithms are generally more susceptible to fluctuations, since they rely on different mechanisms to manage supply, some of which work better than others.
The type of reserves that stablecoins hold and how they are managed also play a role in determining the stability of the crypto assets included in this category. As expected, fiat-collateralized stablecoins tend to be steadier, but there are variations here as well, depending on the composition of the reserves and the custodian’s ability to keep them safe.
Some issuers prefer to keep only cash, while others include other financial instruments as well, such as bank deposits and short-term government securities, and each of these components can impact stability. It’s also possible for reserves to get lost, stolen, or compromised due to custodians’ errors, in which case the value of the stablecoins they back can also be greatly affected.
On top of it all, you also need to take the state of the market into account. A stablecoin can have all the right attributes and sound great on paper, but it doesn’t exist in a bubble. Like all other digital currencies, stablecoins can also be impacted by major market events, and with crypto, you can simply never know when something big (good or bad) is going to happen. If there’s a sudden market downturn and people start selling their stablecoins en masse, their prices will inevitably drop.
Ultimately, there can be no guarantee that stablecoin prices won’t fluctuate. No asset, conventional or otherwise, can offer this kind of reassurance, so it would be absurd to assume that stablecoins can.
What are the regulations around stablecoins?
Another important aspect to look into when examining stablecoins is their regulatory status. As you might probably know, the rules around cryptocurrencies are still a work in progress, so the regulatory landscape is far from comprehensive or uniform. The fact that digital currencies are decentralized and operate globally clashes with the local nature of regulations, so it’s challenging to reconcile this contradiction and create effective regulatory frameworks for crypto.
However, there’s been quite a lot of progress with respect to stablecoin regulations in the US market, with the passage of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), which was signed into law in July 2025. The Act introduces clear standards and provisions for stablecoin issuers, such as the obligation to maintain a 1:1 reserve of high-quality liquid assets and employ anti-money laundering (AML) and know-your-customer (KYC) protocols.
On the European front, EU countries have adopted MiCA (Markets in Crypto-Assets Regulation), a groundbreaking and all-encompassing regulatory system for crypto that covers all aspects and facets of the market, including stablecoins.
The development of crypto-specific regulations and the clarification of stablecoins’ regulatory standing are increasing people’s trust in these types of assets, as it removes uncertainties and create a safer environment to engage with them. Increased confidence can also lead to wider adoption and ensure steadier prices in the long run.
So, even though stablecoins are not, by any stretch of the imagination, flawless, they still represent a very promising crypto subset thanks to their innovative approach and are far more reliable, price-wise, than other types of digital currencies.
