Stablecoins: the peg, the backing, and the risk

What is being tracked?

A stablecoin aims to follow a reference value, often a currency. The token remains a blockchain asset; the way it maintains that relationship depends on its design.

Different ways to support a peg

Some issuers hold conventional assets in reserve. Other systems use crypto collateral or algorithmic mechanisms. These arrangements have different dependencies, and the same dollar label does not make two tokens equivalent.

Look behind the price

For a reserve-backed token, examine the backing and redemption arrangement. For a crypto-backed design, understand the collateral system. A quoted market price alone cannot explain how a token would behave under stress.

Build a research checklist

Identify the reference asset, backing mechanism, issuer or protocol, supported network, and official documentation. Treat claims of stability as something to investigate before comparing token balances.