"Stable" is a promise, not a mechanism. Understanding what backs that promise is the whole job.
What they are for
A stablecoin is a token designed to track one currency, usually the US dollar. Two jobs: it gives crypto traders something to price and settle in that does not swing, and it moves value across a network that runs all day.
How the value is meant to be held
Three mechanisms, in descending order of how much they mean:
- Reserved — the issuer holds cash and short-term treasuries for every token issued. The token is a claim on that pile.
- Over-collateralised — tokens are issued against crypto already locked as collateral, with more collateral than value. No company behind it; if the collateral falls, the position is liquidated.
- Algorithmic — other tokens and rules hold the price, with no reserve at all. Designed to work without a company and dependent entirely on that design holding.
The risk to understand: a stablecoin holder is trusting the issuer, not just the blockchain. Check which kind you hold and what backs it. Our safety guide covers the rest of the ways a holding can go wrong.
Why this matters for deposits
When a plan quotes a figure, the amount is usually expressed in a stable unit. Understanding what that unit is — and that it is not the same as a bank balance — is part of understanding the plan terms.