A stablecoin is a crypto asset designed to maintain a relatively stable value against a reference. That reference is usually a currency such as the US dollar, though it can also be another currency or a basket of assets.

The word “stable” describes the mechanism’s goal, not a guarantee. For example, USDT aims to keep a value close to one dollar, but its market price can temporarily diverge from that reference. The availability of reserves, liquidity, the issuer’s operations, regulation, and market conditions can all affect its value.

The Bank for International Settlements defines stablecoins as crypto assets that aim to maintain a stable value relative to a specific asset or a basket of assets. The International Monetary Fund also warns that there are risks of de-pegging, liquidity, reserves, and operations.

How do they aim to hold their value?

The mechanism depends on the type of stablecoin:

  • Asset-backed: the issuer states that it holds cash, financial instruments, or other assets to meet redemptions.
  • Crypto-collateralized: these use collateral deposited in protocols and typically require backing that exceeds the value issued.
  • Algorithmic: these attempt to adjust supply through software rules. Their stability can depend heavily on incentives and market confidence.

Before using a stablecoin, it’s worth reviewing who issues it, what it discloses about its reserves, how redemption works, which networks it’s available on, and what it costs to transfer.

What are they used for?

Stablecoins can facilitate transfers between wallets, cross-border settlements, and conversions between local currencies and digital assets. They also allow transactions outside traditional banking hours when the networks used are available.

That doesn’t mean every transaction is instant or free. The final time and cost depend on the network, congestion, compliance controls, the provider, and the payment route.

How are they used at EFY?

EFY lets you convert balance between local currencies and available digital assets, including USDT in enabled markets. Before confirming a transaction, the platform shows the applicable rate, the fee, and the estimated total you’ll receive.

You can check out how fees and exchange rates work or see the tutorial on buying, selling, and converting balance.

Risks to consider

A stablecoin isn’t the same as money in a bank account and may not carry the same protections. Key risks include:

  • temporary or permanent loss of the peg;
  • insufficient or low reserve liquidity;
  • failures by the issuer, custodian, network, or smart contract;
  • mistakes when choosing a network or destination address;
  • regulatory changes or access restrictions.

Always verify the asset, the network, and the address before sending. This explanation is informational and does not constitute financial, legal, or investment advice.