Key TakeawaysStablecoins are cryptocurrencies that are backed by government currencies, like the US dollar or euro.
As cryptocurrency began to grow, there was a demand for coins that were pegged to real-world assets like the US dollar.
Tether (USDT) was the first stable coin to launch in 2015.
Tether created a coin called Tether, and each unit of Tether was backed and equal to $1 US dollar.
Today, there are other large stable coins pegged to the US dollar, namely USDC, which is run by Circle.
BUSD, is another large stablecoin, which is operated by Binance.
There are other stable coins backing other assets, but none of them are similar in size to the top three USD stable coins: USDT, USDC and BUSD.
The pros of stable coins are:
The main issue with stable coins is that you need to trust the issuer that they actually hold the assets backing the stablecoin.
For example, it’s technically possible that the company running USDT doesn’t own any dollars.
However, the markets are quick to react with news.
When there are scares about stable coin issuers owning backing assets, the peg of the coin usually comes undone.
The risks of stable coins are larger when using them for long term storage. If you’re just transferring or sending money quickly, the risks are fairly low since the peg would need to come undone exactly at the time of transfer.
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