Stablecoins Explained: What They Are, Real Risks (Depeg), and Why They Power the Entire Crypto Market

I wanted to start the year with a special piece.
One I’ve had in mind for a long time and finally polished during the holidays.

Because if you use crypto, you use stablecoins.
And yet… people barely talk about them, considering how critical they are.

Today, we put them at the center.

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What is a stablecoin?

A stablecoin is a crypto asset designed to keep a stable price, usually pegged to the US dollar.

They are not built to pump.
They are built to hold the entire system together.

They act as:

• A temporary refuge from volatility
• A unit of account inside DeFi
• A bridge between risk and safety
• The base layer for lending, LPs, perps and derivatives

Without stablecoins:

• No DeFi
• No liquidity
• No efficient market

They are not “just another token”.
They are infrastructure.

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The main stablecoins and what backs them

With stablecoins, narrative matters less than one thing: real backing.

USDT (Tether)

Issued by Tether.

Backing (broadly):

• Treasury bills
• Cash
• Repos
• Other financial assets

USDT is not “pure 1:1 cash”.
It’s a promise backed by a basket of assets.

Strength: extreme liquidity.
Risk: trust in the issuer.

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USDC (USD Coin)

Issued by Circle.

Backing (broadly):

• Cash
• Short-term T-bills
• Regular attestations / reports

USDC is the “institutional” stablecoin.

Strength: transparency.
Risk: freezing, direct regulation, banking dependencies.

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DAI

Issued by MakerDAO.

Backing:

• Crypto collateral
• Over-collateralization
• On-chain mechanisms

DAI was born as pure decentralization, although it now relies partly on centralized stables within its collateral mix.

Strength: real DeFi design.
Risk: liquidations in extreme events and indirect fiat dependence.

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FDUSD

Backing (broadly):

• Cash
• Regulated custody

An emerging stablecoin with strong adoption on CEX venues.

Strength: fast growth.
Risk: shorter track record and lower DeFi usage.

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USDe (Ethena)

Issued by Ethena.

Backing:

• Delta-neutral strategies
• Derivatives
• Funding rates

USDe is not “cash-like”.
It is financial engineering.

Strength: scalability + yield.
Risk: market conditions, funding changes, tail events.

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Is it safe to store your wealth in stablecoins?

The real question is not “is it safe”.

The real question is:

What risk are you taking?

Because it is not the same to hold stablecoins:

• In your wallet
• In lending protocols
• In LP positions
• In synthetic systems or complex yield designs

Every choice changes the risk profile completely.

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Real stablecoin risks (explained properly)

This is the most important part.

1) Issuer risk

If the issuer fails, lies, or gets intervened, confidence breaks.

Logos do not matter.
Custody and backing do.

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2) Regulatory risk

Centralized stablecoins can be:

• Frozen
• Blocked
• Seized or restricted

This is not theory. It has happened before.

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3) Banking risk

Many stables depend on traditional banks.

If a banking partner has issues, the stablecoin can be impacted too.

Recent history showed how fast “everything is fine” can change.

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4) Smart contract risk

In DeFi, you are not only trusting the stablecoin.

You are trusting the code.

A bug can do more damage than a bad market.

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5) The key risk: depeg

A depeg happens when a stablecoin loses its 1:1 parity with the dollar.

It does not always happen instantly.
Sometimes it starts with small cracks.

Common causes:

• Market panic
• Doubts about backing
• Liquidity stress
• Massive simultaneous selling

When confidence disappears, nobody wants to be the last one out.

And then:

• 1 USDC stops being 1
• 1 USDT trades at a discount
• Liquidity dries up

A depeg is not just a price dip.
It is a confidence crisis.

And confidence is everything in finance.

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Stablecoins in lending and LPs: the hidden risk

Stablecoin yield is not “risk free”.

When you lend or LP, you take:

• Protocol risk
• Systemic risk
• Indirect liquidation risk

The APY is compensation for risk.

If you do not know which risk you are getting paid for, you are farming blind.

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Using stablecoins to read the market

This is where many people get it wrong.

Tools like DeFiLlama allow you to track:

• Stablecoin inflows by chain
• Outflows toward exchanges
• Dominance shifts

Stablecoin flows can signal:

• When capital is preparing to buy
• When the market is moving into safety
• When risk is being reduced

They do not predict the future.
But they show how capital actually moves.

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Is 1 USDC the same as 1 dollar?

Conceptually, no.

A dollar:

• Is legal tender
• Is backed by a state
• Has forced acceptance inside the system

USDC:

• Is a digital liability
• Depends on an issuer
• Depends on the financial system

Most of the time, they trade the same.
Until they do not.

And when that happens, the difference becomes brutal.

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Conclusion

Stablecoins are not boring.
They are critical.

They are not “zero risk”.
They are “different risk”.

If you use crypto and do not understand stablecoins, you are not managing risk.
You are trusting.

And in this market, trusting without understanding usually gets expensive.

Save this. Read it slowly.
Because understanding stablecoins is understanding the heart of crypto markets.