A stablecoin is designed to hold one currency's value. A bank account is guaranteed to hold it. Those are different claims, and the difference is the entire risk.
What the word "stable" means
It describes a target, not a guarantee. The price is held near one currency by three possible mechanisms — reserves, over-collateralisation, or an algorithm — each explained in the stablecoin guide.
What a bank gives you that a stablecoin does not
- Deposit insurance, up to a limit, in most countries. A stablecoin has none.
- A regulated recourse. If something goes wrong there is a regulator to complain to. With an issuer it may be unclear who that is.
- The pound and the dollar are the liability of a legal entity in your jurisdiction. A stablecoin's is not.
A peg can break. When a stablecoin loses its peg, it does so quickly and without warning. The mechanism meant to hold the price is the same one that can fail to. This is the difference between a stablecoin and a bank balance, stated plainly.
How to use one sensibly
- Know which kind you hold and what backs it.
- Do not treat it as money you can leave indefinitely without checking.
- Never let it be the only thing between you and an obligation.
For the wider picture: wallets, choosing a custodian, and sizing.