What is a stablecoin, and what are the three families?

A stablecoin is a token designed to trade at a fixed value in another unit of account, almost always one United States dollar, while moving on a blockchain like any other token. Nothing about a token makes it stable on its own. Stability comes from a mechanism sitting behind the token, and there are three broad families of mechanism, which is why the family a token belongs to is the most useful single fact about it.

The target price is called a peg. A peg is a design goal and a promise from whoever runs the mechanism, not a property of the token. Every stablecoin trades in an open market where the price is set by buyers and sellers, so the observed price and the target price are two different numbers. The gap between them, shown on this site as peg deviation in basis points, is the honest measure of how well the mechanism is working at a given moment.

Family one: a transferable claim on assets held off-chain

A fiat-backed stablecoin is issued by a company that receives dollars, holds them as bank deposits and short-dated government debt, and issues one token for each dollar taken in. In economic substance the token is a transferable claim on that reserve. The mechanism that defends the price is redemption: an approved counterparty who can buy the token below a dollar in the market and redeem it with the issuer at a dollar has a reason to keep buying until the discount closes. That is ordinary arbitrage, and it works only as well as the redemption channel behind it works.

The consequences follow directly from the structure. The token inherits the credit quality and liquidity of the reserve assets, the solvency of the banks holding the cash, and the operational reliability of the redemption desk. It also inherits the issuer's ability to freeze balances, because the same contract that mints tokens usually lets an administrator block an address. That capability is a compliance feature and a centralization risk at the same time; both descriptions are accurate, and a reader who only hears one of them has been given half the picture.

Family two: a claim on volatile collateral locked on-chain

A crypto-collateralized stablecoin is created by locking volatile assets into a smart contract and minting stablecoins against them as debt. Because the collateral can fall in price, the contract demands more collateral than the debt it issues. That surplus is called over-collateralization, and it is the entire safety margin of the design. If the collateral value drops toward the debt value, the position is sold off automatically in a liquidation that repays the debt and cancels the stablecoins it created.

Nobody redeems these tokens from a company. The stabilizing force is that anyone holding the stablecoin can buy it below par and use it to repay debt at par, retrieving collateral worth more than they paid. That closes discounts in the same direction as issuer redemption, but it depends on things that can break: an oracle reporting collateral prices, liquidators with capital available, and a blockchain that keeps confirming transactions while prices are moving quickly.

Family three: designs with no collateral worth the tokens outstanding

An algorithmic stablecoin tries to hold a peg by adjusting supply rather than by holding assets. The usual construction pairs the stablecoin with a second, freely floating token and allows holders to convert between the two at the target price. When the stablecoin trades below the peg, holders can exchange it for newly created units of the floating token worth a full dollar, which removes stablecoin supply and is meant to lift the price back.

The weakness is structural rather than incidental. The value supporting the stablecoin is the market value of the floating token, and that value falls when confidence in the pair falls, which is precisely when the mechanism is being asked to work hardest. The failure of Terra's UST in May 2022 is the reference case for how that feedback loop ends, and it is covered later in this track. Since then the label has also been applied to designs that hold real collateral and merely automate its management, so the word alone is not a reliable description of what a token does.

Real designs mix, and the labels drift

Very few live tokens are pure examples of one family. A crypto-collateralized system may accept fiat-backed stablecoins and real-world assets as part of its collateral, which imports the first family's risks into the second family's architecture. An issuer may hold its reserve inside a tokenized money market fund rather than as raw deposits. Some tokens pay a yield to holders and are legally structured as fund shares, which makes them a different instrument from a payment token that shares nothing.

Two practical confusions are worth clearing early. First, the same ticker can exist on many chains, and the version on a chain reached through a bridge is a separate contract whose backing is whatever the bridge holds, not the issuer's reserve. A wrapped token carries the risk of its wrapper. Second, most dollar tokens on Ethereum and similar networks follow the ERC-20 standard, so they look identical in a wallet regardless of which family issued them. The interface reveals nothing about the backing.

What to look at, and what these numbers do not mean

Three quantities describe a stablecoin's footprint. Stablecoin circulating supply is the quantity of tokens outstanding. Supply change over thirty days shows whether tokens are being created or redeemed, which is a rough proxy for money entering or leaving the ecosystem. Stablecoin supply hosted shows how much of the total sits on a given chain, which matters for where payments and trading actually happen.

None of these is a valuation figure. A stablecoin's supply resembles the size of a deposit book far more than it resembles the market capitalization of a growth asset: it grows when people hand over dollars and shrinks when they take them back, and a larger number does not imply a stronger design or a safer reserve. Nor is supply growth evidence of adoption in a general sense, since a single large trading firm moving inventory can move the figure.

Next in this track, the fiat-backed family is examined line by line: what actually sits in a reserve, who is allowed to redeem, and who keeps the income the reserve produces. The stablecoins page lists the tokens tracked here with their supply and peg data, the glossary defines the terms used above, and methodology explains how each figure is computed.