Bitaigen Research We have organized the core functions and real‑world use cases of stablecoins in this article to help readers understand their value in pricing, hedging, cost reduction, and everyday payments. Through case studies, we also reveal the advantages and potential risks of different types of stablecoins, assisting more prudent decisions when allocating assets. To find out whether stablecoins can truly remain “stable,” keep reading.
Functions, Uses, and Value of Stablecoins
1. Dual Role of Pricing and Hedging
In the crypto‑asset market, almost every token can be paired with a USD‑pegged stablecoin (with the exception of a few obscure coins). This is thanks to the 1:1 anchoring to the US dollar. When traders say something like “BTC is now how many U,” the U refers to stablecoins such as USDT or USDC. Because their price volatility is minimal, these tokens serve well as a unit of account and can be switched quickly during market swings, helping investors avoid short‑term drawdowns.
2. Reducing Transaction Costs
Traditional fiat deposits often come with credit‑card fees, inter‑bank wire charges, or premium spreads on peer‑to‑peer (C2C) trades. By using stablecoins directly for buying and selling, users only need to pay the fee charged by the trading platform. When fiat withdrawal is required, the assets can first be moved back into a stablecoin and exchanged for fiat later when conditions are favorable, thus avoiding a single large‑scale cash‑out fee. For frequent traders, keeping a sufficient balance of stablecoins in advance can significantly cut overall costs. Withdrawals can be routed through SEPA or SWIFT channels, depending on the user’s jurisdiction.
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3. Real‑World Payments and Charitable Donations
As acceptance of crypto assets grows, more merchants are supporting digital‑currency payments, especially USD‑pegged stablecoins. Notable examples include:
- Gent Catcher – Taiwan’s first suit shop to accept crypto payments.
- 循映牙醫 – The first dental clinic in Taiwan to accept USDT.
- Hong Kong’s 端传媒 – Also accepts USDT.
- Ukraine during the war opened crypto‑donation channels, with USD‑stablecoins being a primary option.
These examples illustrate that stablecoins are no longer confined to exchange‑internal pricing tools; they are gradually permeating everyday consumption and charitable sectors.
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What Is a Stablecoin?
In the crypto community, the term “stablecoin” appears frequently. While most crypto assets experience 10 %–20 % price swings, stablecoins tend to stay relatively flat because they are backed by real assets (except for algorithmic variants).
Take a USD‑pegged stablecoin as an example: to issue one million tokens, the issuer must deposit the equivalent of one million US dollars in a custodial account; otherwise, the market will not recognize the 1:1 anchor and the price may plunge dramatically. Gold‑backed PAXG works similarly, with each token representing one ounce of physical gold. This mechanism resembles the historic gold standard, except that the reserve assets are now diversified fiat currencies or commodities rather than pure gold.
It is important to note that not all USD‑stablecoins keep their reserves solely in cash. Some include stocks, bonds, or even crypto assets, as long as the overall value matches the issued supply. However, using crypto assets as reserve collateral often sparks controversy, prompting some issuers to favor traditional financial assets.
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Classification of Stablecoins
Based on the nature of the backing, stablecoins can be divided into four major categories:
1. Fiat‑Collateralized
These stablecoins are directly backed by fiat currency or equivalent assets, with a 1:1 deposit made at issuance. When holders wish to redeem for fiat, the issuer withdraws the corresponding amount from the reserve and burns the redeemed tokens to keep supply and demand balanced. In practice, tiny price deviations (e.g., $0.005) may appear due to market dynamics, but the token generally stays very close to its peg.
2. Crypto‑Collateralized
Using DAI as a case study, users lock crypto assets (such as ETH) into a smart contract, which then automatically mints the corresponding amount of DAI. Because crypto assets are highly volatile, the system requires over‑collateralization (typically 150 %–200 %) to ensure that a price drop still covers the issued DAI. Repayment must include both principal and accrued stability fees; the system subsequently destroys the returned DAI.
3. Commodity‑Backed
These tokens are underpinned by tangible commodities, most commonly gold. Each token corresponds to a specific weight of gold or other precious metal, such as DGX (1 gram of gold per token) and PAXG (1 ounce of gold per token). There are also oil‑backed tokens like Petro. Their value fluctuates with spot commodity prices, but the physical nature of the reserve tends to provide higher transparency.
4. Algorithmic (Non‑Collateralized)
Algorithmic coins do not rely on any physical or financial asset. Instead, they maintain the peg through supply‑demand mechanisms encoded in smart contracts. When the token price falls below the target, the contract buys back and burns a portion of the supply; when the price rises above the target, new tokens are minted and released. The classic example was Terra’s UST, which used arbitrage opportunities provided by LUNA miners to keep the system in equilibrium. However, in extreme market conditions these models can enter a “death spiral,” causing the price to decouple from the intended peg.
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Main Risks Facing Stablecoins
1. Peg Deviation
Regardless of whether the backing is fiat, crypto, or commodity, stablecoins can drift away from their anchor due to supply‑demand imbalances, market panic, or insufficient reserve transparency. Historically, USDT fell to around $0.60 in 2018, and during the 2022 Ukraine crisis its price briefly surged above $1.00.
2. Regulatory Vacuums and Compliance Risks
Globally, regulatory frameworks for stablecoins are still evolving. If an issuer commits internal violations or suffers a theft, token holders often lack clear legal recourse. In April 2022, the Beanstalk Farms protocol was hacked, resulting in the loss of roughly $80 million and an 80 % plunge in its BEAN stablecoin, which lost its peg instantly.
3. Run‑On Scenarios
Similar to a traditional banking run, if a large number of holders attempt to redeem their stablecoins simultaneously, even a well‑funded reserve may be unable to provide liquidity quickly enough, leading to a price collapse. Black‑swan events such as negative news spikes or macro‑financial shocks often serve as the catalyst for such runs.
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Three Widely Recognized Stablecoins in the Industry
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Top Ten Stablecoins of 2026 (Based on Market Cap and Activity)
- USDT – Remains the largest‑cap, most liquid USD‑stablecoin.
- USDC – Leads in regulatory compliance and institutional adoption.
- USDE – A synthetic stablecoin employing a delta‑neutral strategy, also offering yield features.
- DAI – Decentralized, crypto‑over‑collateralized token.
- USD1 – Launched in 2025, fully fiat‑backed, custodially secured by the U.S.‑regulated entity BitGoTrust.
- PYUSD – Issued by Paxos, deeply integrated with the PayPal ecosystem for payments and Web3 use cases.
- XAUT – Tokenized physical gold released by Tether’s subsidiary TG Commodities.
- EURC – Euro‑pegged stablecoin from Circle, compliant with the EU’s MiCA regulations.
- USDD – Originally an early algorithmic token on the TRON DAO, now converted to an over‑collateralized reserve model.
- USDY – Yield‑bearing stablecoin from Ondo Finance, backed by U.S. Treasury bonds and cash deposits, offering roughly 5 % annualized returns.
Note: The ranking reflects publicly available data as of February 2026; positions may shift with market fluctuations.
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Risk Assessment Summary
- Peg Deviation: Even the market‑dominant USDT has experienced noticeable drops below $1.
- Regulatory Gaps: The absence of a unified global regulatory regime makes it difficult to assess issuer credit risk.
- Run‑On Pressure: Extreme market sentiment can trigger mass redemptions, causing the token to lose its anchor instantly.
When selecting or holding stablecoins, pay close attention to the issuer’s asset transparency, frequency of audit reports, and whether a reputable custodial institution oversees the reserves.
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Conclusion
Stablecoins act as a “bridge” within the digital‑asset ecosystem: they provide a common pricing benchmark for diverse cryptocurrencies and offer a hedge during periods of market volatility. For investors seeking lower transaction fees, fast cross‑chain payments, or a relatively stable store of value, a well‑thought‑out allocation to stablecoins remains a useful tool.
If you are concerned about price volatility but still wish to participate in crypto‑market opportunities, consider purchasing mainstream USD‑stablecoins (such as USDT or USDC) on a reputable platform, and monitor their reserve attestations and compliance status. Afterwards, you may explore staking or yield‑generation projects that align with your risk tolerance, potentially earning returns that surpass traditional bank savings rates.
Tax Reminder: Crypto‑related gains may be taxable in your jurisdiction. Please consult a local tax professional to understand your obligations.
For deeper analysis of stablecoins, stay tuned to Bitaigen (比特根) for upcoming specialty articles.
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