The basic idea
Most crypto assets float freely: their price is whatever buyers and sellers agree on at any moment. A stablecoin is built to behave differently. It aims to hold a fixed value, called its peg, most often one unit of a widely used fiat currency. A dollar-pegged stablecoin, for example, tries to stay at or very close to 1.00 US dollar.
That steadiness is what makes stablecoins useful on a crypto exchange. Pairs such as BTC-USDT are priced in a stablecoin, so you can see prices in a familiar unit and move between assets without leaving the blockchain world.
How stablecoins try to hold their peg
There are several designs, and the differences matter because each one fails in a different way.
| Type | What backs it | Main risk |
|---|---|---|
| Fiat-backed | Cash and short-term assets held by an issuing company | Relies on the issuer actually holding the reserves and being able to pay out |
| Crypto-collateralised | Other crypto assets locked in smart contracts, usually worth more than the stablecoins issued | A sharp fall in the collateral's value can trigger forced sales |
| Algorithmic | Rules that expand or shrink supply, sometimes with little or no collateral | Can lose its peg quickly if confidence breaks |
| Commodity-backed | A physical asset such as gold, held in storage | Tracks the commodity's price, which itself moves |
Fiat-backed in practice
When someone deposits one dollar with the issuer, one token is created. When a token is redeemed, it is destroyed and a dollar is paid out. Because large holders can usually redeem at 1.00, traders have a reason to buy the token when it trades below the peg and sell when it trades above it. That arbitrage is what keeps the market price close to 1.00 in normal conditions.
Crypto-collateralised in practice
Suppose, as an example, a protocol requires 150% collateral. To mint 1,000 stablecoins, you lock up crypto worth at least 1,500. If the collateral's value drops towards 1,000, the system sells it off to repay the debt before the stablecoin becomes undercollateralised. The buffer protects the peg, but only as long as the collateral can be sold in time.
What stablecoins are used for
- Pricing and trading pairs: a common quote asset across many markets.
- Parking value between trades: moving out of a volatile asset without withdrawing to a bank.
- Transfers: sending value across a blockchain at any hour.
- Decentralised finance: many DeFi applications use stablecoins as a base unit for lending and liquidity pools.
Risks to understand
- De-pegging. Under stress, a stablecoin can trade below its target, briefly or for a long time.
- Issuer and reserve risk. For fiat-backed coins, you depend on the issuer's honesty, reserve quality and ability to process redemptions.
- Smart contract risk. Coins that run on code can be affected by bugs or exploits.
- Freezing. Some issuers can freeze tokens held at specific addresses.
- Network choice. The same stablecoin may exist on several blockchains. Sending it on the wrong network can mean the funds do not arrive. Always check the network on the deposit screen.
Stablecoins on Zenvorika
The stablecoin pairs available are listed on the markets page. If you want to see how a stablecoin-quoted pair behaves before using real funds, you can use the practice account on the trading terminal at /trade/, which trades virtual funds against live prices. For more on the general risks of crypto assets, read our risk disclosure.
Crypto assets are highly volatile and you may lose all the capital you invest.
Practise without risk to real funds
The practice account trades live prices with virtual USDT.