Getting Started with Stablecoins
Welcome to the world of stablecoins! This guide will help you understand stablecoins from scratch, whether you're new to cryptocurrency or an investor looking to deepen your knowledge.
What is a Stablecoin?
A stablecoin is a type of cryptocurrency designed to maintain a stable value. Unlike volatile cryptocurrencies like Bitcoin and Ethereum, stablecoins are typically pegged to fiat currencies (such as the US dollar or euro) or other assets (such as gold) to maintain a relatively stable price.
Why Do We Need Stablecoins?
- Price Stability: Avoid risks from cryptocurrency price volatility
- Medium of Exchange: Act as "dollars" in the cryptocurrency market for trading and settlement
- Store of Value: Preserve asset value in volatile markets
- Cross-Border Payments: Fast, low-cost international transfers
- DeFi Foundation: Core assets of the decentralized finance ecosystem
Main Types of Stablecoins
1. Fiat-Collateralized Stablecoins
These stablecoins are backed by fiat currencies (such as the US dollar) as collateral, typically pegged at a 1:1 ratio.
Representative Projects:
- USDT (Tether): The largest stablecoin by market cap, backed by US dollar reserves
- USDC (USD Coin): Issued by Circle and Coinbase, with higher transparency
- PYUSD (PayPal USD): Stablecoin issued by PayPal, highly integrated
- FDUSD (First Digital USD): Compliant stablecoin issued by First Digital
- GUSD (Gemini Dollar): Stablecoin issued by Gemini exchange, regulated in New York
- USDP (Pax Dollar): Stablecoin issued by Paxos, formerly known as PAX
- EURS (STASIS Euro): Euro-pegged stablecoin
- EURC (Circle Euro Coin): Euro stablecoin issued by Circle
Characteristics:
- ✅ Stable price, usually close to $1
- ✅ Good liquidity, easy to trade
- ✅ Easy to understand and use
- ⚠️ Requires centralized institutions to custody fiat reserves
- ⚠️ Regulatory risks exist
2. Crypto-Collateralized Stablecoins
These stablecoins are backed by other cryptocurrencies (such as Ethereum) as collateral, maintaining stability through over-collateralization.
Representative Projects:
- DAI: Decentralized stablecoin issued by MakerDAO, over-collateralized by ETH and other assets
- USDE (Ethena USD): Synthetic dollar stablecoin issued by Ethena protocol, using BTC and ETH as collateral, maintaining stability through delta-neutral strategy
- sUSD: Synthetic stablecoin issued by the Synthetix protocol
Characteristics:
- ✅ Decentralized, no need to trust centralized institutions
- ✅ High transparency, verifiable on-chain
- ✅ Strong censorship resistance
- ⚠️ Requires over-collateralization (typically 150%+)
- ⚠️ Liquidation risks exist
3. Algorithmic Stablecoins
These stablecoins maintain price stability by automatically adjusting supply through algorithms and smart contracts, typically with little or no collateral.
Representative Projects:
- FRAX: Hybrid model with partial algorithm and partial collateral, using fractional algorithmic stablecoin mechanism
- USDD (Tron DAO Reserve): Algorithmic stablecoin in the Tron ecosystem, backed by TRX and other assets
- USDX (Kava): Algorithmic stablecoin issued by the Kava protocol
- LUSD (Liquity USD): Interest-free algorithmic stablecoin issued by Liquity protocol, over-collateralized by ETH
- DOLA (Inverse Finance): Algorithmic stablecoin from Inverse Finance
- UST (TerraUSD): Failed, but was once a representative algorithmic stablecoin case
Characteristics:
- ✅ High degree of decentralization
- ✅ High capital efficiency
- ⚠️ High risk, multiple historical failures
- ⚠️ Complex mechanisms, require deep understanding
4. Commodity-Collateralized Stablecoins
These stablecoins are backed by physical assets (such as gold) as collateral.
Representative Projects:
- PAXG (PAX Gold): Stablecoin backed by physical gold
Characteristics:
- ✅ Pegged to physical assets
- ✅ Inflation-resistant
- ⚠️ Relatively low liquidity
- ⚠️ Requires physical asset custody
Use Cases of Stablecoins
1. Trading and Investment
- Safe Haven Asset: Convert assets to stablecoins during cryptocurrency market volatility
- Trading Pairs: Main trading pairs on cryptocurrency exchanges
- Arbitrage Trading: Profit from price differences across platforms
2. Payments and Transfers
- Cross-Border Payments: Fast, low-cost international transfers
- Daily Payments: Some merchants accept stablecoin payments
- Remittances: Transfer money to friends and family overseas
3. DeFi Applications
- Liquidity Mining: Provide liquidity in DeFi protocols to earn returns
- Lending: Use as collateral or borrow assets
- Yield Farming: Participate in various DeFi yield strategies
4. Savings and Wealth Management
- Stable Returns: Deposit stablecoins on CeFi platforms to earn interest
- Time Deposits: Lock assets for higher returns
- Asset Allocation: Stable asset portion of investment portfolio
History of Stablecoins
Early Stage (2014-2017)
- 2014: Early stablecoin projects like BitUSD and NuBits emerged
- 2015: Tether (USDT) issued on the Bitcoin network
- 2017: MakerDAO launched DAI, the first decentralized stablecoin
Rapid Development Period (2018-2020)
- 2018: Compliant stablecoins like USDC and PAX were issued
- 2019: Total stablecoin market cap exceeded $5 billion
- 2020: DeFi boom, surge in stablecoin demand
Maturity Period (2021-Present)
- 2021: Total stablecoin market cap exceeded $100 billion
- 2022: UST collapse, algorithmic stablecoin risks exposed
- 2023-2024: Increased regulation, compliant stablecoins dominate the market
How to Get Started with Stablecoins?
Step 1: Choose the Right Stablecoin
For beginners, we recommend:
- USDC: High transparency, good compliance, suitable for beginners
- USDT: Best liquidity, but relatively lower transparency
- DAI: Decentralized, suitable for DeFi users
Step 2: Choose a Trading Platform
Centralized Exchanges (CEX):
- Binance
- Coinbase
- Kraken
- OKX
Decentralized Exchanges (DEX):
- Uniswap
- Curve
- PancakeSwap
Step 3: Buy Stablecoins
- Register Account: Register on an exchange and complete KYC
- Deposit Fiat: Deposit via credit card, bank transfer, etc.
- Buy Stablecoins: Purchase USDC, USDT, etc. with fiat
- Withdraw to Wallet: Withdraw stablecoins to personal wallet (optional)
Step 4: Secure Storage
Hot Wallets (Online Wallets):
- MetaMask
- Trust Wallet
- Coinbase Wallet
Cold Wallets (Hardware Wallets):
- Ledger
- Trezor
Exchange Wallets:
- Convenient but less secure, suitable for small amounts
⚠️ Security Tip: Large amounts should use hardware wallets, small amounts can use hot wallets or exchanges.
Frequently Asked Questions
Q: Are stablecoins really stable?
A: Stablecoins are not absolutely stable, and prices may fluctuate between $0.99-$1.01. In extreme cases (such as USDT's depegging in 2018), prices may deviate from $1.
Q: Do stablecoins have risks?
A: Yes, stablecoins have the following risks:
- Depegging Risk: Price deviates from $1
- Regulatory Risk: May face regulatory restrictions
- Technical Risk: Smart contract vulnerabilities, hacker attacks
- Centralization Risk: Fiat-collateralized stablecoins rely on centralized institutions
Q: How to choose a stablecoin?
A: Consider the following factors:
- Use Case: Trading, DeFi, savings, etc.
- Risk Tolerance: Conservative choose USDC, aggressive choose DAI
- Transparency: Check project audit reports and reserve proofs
- Liquidity: Choose stablecoins with high trading volume
Q: Do I need to pay taxes on stablecoins?
A: This depends on your country/region. It's recommended to consult a tax professional.
Next Steps
Now that you understand the basics of stablecoins, you can continue learning:
- 📖 Technical - Deep dive into stablecoin technical mechanisms
- 🔒 Security - Learn how to use stablecoins securely
- 💰 On-Ramp/Off-Ramp Guide - Learn how to buy and sell stablecoins
- 💵 Earning Guide - Explore methods to earn returns through stablecoins
Ready to start your stablecoin journey? Remember, investing involves risks, so be sure to do your research and manage risks! 🚀