Stablecoin: what it is and why stable doesn't mean safe

A stablecoin is a crypto-asset designed so that its price stays close to a reference value, most often a fiat currency such as the dollar or euro. The most popular model is backing with reserves: the issuer states that each issued unit is matched by an equivalent value in cash or liquid assets. There are also crypto-collateralized stablecoins and algorithmic ones, based on supply mechanisms.

Stablecoins serve as a safe haven between trades, for transfers and as a settlement currency in crypto markets. “Stable” does not mean “safe,” though: the price can come unpegged from its reference value when reserves are insufficient or confidence drops, and algorithmic models have collapsed before. In the EU, stablecoin issuers are covered by the requirements of the MiCA regulation (Markets in Crypto-Assets).