Summary
Overview guide to stablecoins in decentralized finance (DeFi): types (fiat-backed, crypto-backed, algorithmic), uses (trading, lending, borrowing, liquidity), and risks. Written before the GENIUS Act; useful as background reference.
Key Points
- Stablecoins bridge fiat currencies and crypto; primary role is stability in volatile crypto markets.
- Three types: fiat-backed (USDC, USDT — most stable); crypto-backed (DAI — overcollateralized); algorithmic (no collateral — highest risk, Terra/LUNA collapse case).
- DeFi uses: collateral for loans, trading pairs, yield farming.
- Risks: de-pegging events, regulatory uncertainty, smart contract bugs.
Concepts Mentioned
- Stablecoin Legislation — background context
- GENIUS Act — what came after this guide was written
- Tether — USDT as fiat-backed example
- Circle — USDC as fiat-backed example
Notes
Background reference; written pre-GENIUS Act. Algorithmic stablecoin section is particularly relevant context for why the GENIUS Act includes a Treasury study (but not a moratorium) on non-fiat-pegged stablecoins.