Crypto
The stablecoin you hold is a claim on something — know what The stablecoin you hold is a claim on something — know what
People treat stablecoins as interchangeable dollars. They are not. Each one is a claim on a different thing, backed by a different mechanism, with a different failure mode. The dollar peg is a design goal, not a law of nature.
There are three broad categories and the differences matter.
Fiat-backed stablecoins are claims on reserves held by a company. You hold a token; somewhere an issuer holds assets that are supposed to match. The relevant questions are what the reserves actually consist of, who verifies that, and how often. Cash and short-term treasuries behave differently from commercial paper under stress. Attestation is not the same as a full audit.
The failure mode here is counterparty risk. In March 2023, USDC briefly traded well below a dollar because a portion of its reserves sat at a bank that failed. The reserves were real. The access to them was in question for a weekend. The peg recovered once that resolved, which is exactly the point — it depegged because of where the backing sat, not because of anything on-chain.
Crypto-collateralised stablecoins are backed by other crypto assets, deliberately overcollateralised because the collateral itself is volatile. The failure mode is a sharp collateral drawdown triggering mass liquidations inside the protocol.
Algorithmic stablecoins attempt to hold the peg through mint and burn mechanics rather than holding backing assets. The 2022 collapse of one large example demonstrated the failure mode: when confidence goes, the mechanism that was supposed to defend the peg accelerates the decline instead. Its stability depended on people believing it was stable.
Practical takeaways.
Know which category you are in. If you are holding significant value, "it is a stablecoin" is not a description of your risk.
Depegs are usually liquidity events before they are solvency events. Thin weekend books and redemption queues can move the price well before anyone knows whether the backing is intact. That distinction matters because one recovers and one does not.
And holding stablecoins on an exchange adds a second layer. You then hold a claim on the exchange, which holds a claim on the issuer, which holds a claim on a bank. Each link is a place where access can be interrupted independently of whether the assets exist.People treat stablecoins as interchangeable dollars. They are not. Each one is a claim on a different thing, backed by a different mechanism, with a different failure mode. The dollar peg is a design goal, not a law of nature.
There are three broad categories and the differences matter.
Fiat-backed stablecoins are claims on reserves held by a company. You hold a token; somewhere an issuer holds assets that are supposed to match. The relevant questions are what the reserves actually consist of, who verifies that, and how often. Cash and short-term treasuries behave differently from commercial paper under stress. Attestation is not the same as a full audit.
The failure mode here is counterparty risk. In March 2023, USDC briefly traded well below a dollar because a portion of its reserves sat at a bank that failed. The reserves were real. The access to them was in question for a weekend. The peg recovered once that resolved, which is exactly the point — it depegged because of where the backing sat, not because of anything on-chain.
Crypto-collateralised stablecoins are backed by other crypto assets, deliberately overcollateralised because the collateral itself is volatile. The failure mode is a sharp collateral drawdown triggering mass liquidations inside the protocol.
Algorithmic stablecoins attempt to hold the peg through mint and burn mechanics rather than holding backing assets. The 2022 collapse of one large example demonstrated the failure mode: when confidence goes, the mechanism that was supposed to defend the peg accelerates the decline instead. Its stability depended on people believing it was stable.
Practical takeaways.
Know which category you are in. If you are holding significant value, "it is a stablecoin" is not a description of your risk.
Depegs are usually liquidity events before they are solvency events. Thin weekend books and redemption queues can move the price well before anyone knows whether the backing is intact. That distinction matters because one recovers and one does not.
And holding stablecoins on an exchange adds a second layer. You then hold a claim on the exchange, which holds a claim on the issuer, which holds a claim on a bank. Each link is a place where access can be interrupted independently of whether the assets exist.
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