What is a stablecoin? How USDT and USDC keep a steady price

A stablecoin is a crypto token built to keep a steady price, most often one US dollar per coin. Unlike bitcoin, whose price can swing by double digits in a week, a stablecoin is meant to act as digital cash that moves quickly on a blockchain.

The two biggest are Tether (USDT) and USD Coin (USDC). Traders use them to move in and out of other cryptocurrencies without returning to a bank account, and many people use them to send money abroad or to hold dollars.

The most common design is fiat-backed. The issuer holds reserves, such as cash and short-term government bills, and promises to redeem each coin for one dollar. Arbitrage helps keep the price on target:

Price below $1 → buy cheap, redeem for $1 → demand lifts the price
Price above $1 → issue new coins for $1, sell higher → supply pushes it down

Crypto-backed stablecoins lock up other tokens worth more than the coins issued, and algorithmic ones try to hold the price with code and incentives alone. The algorithmic type has failed badly in the past, most famously TerraUSD in 2022.

In Turkey, USDT/TRY is among the most traded crypto pairs, because many people use stablecoins as a way to hold dollars against lira depreciation. A stablecoin's price in lira still moves with the dollar exchange rate, so you are exposed to USD/TRY even when the coin holds its peg.

Rules on crypto assets and tax treatment can change, so check the current regulations and use regulated platforms.

The main risk is a depeg, where the coin trades well below its target after a loss of confidence or a problem with reserves. Others include the issuer's solvency, the quality and transparency of its reserves, regulatory action and the platform where you hold the coins.

A common mistake is treating a stablecoin as an insured bank deposit. It is not, and it generally pays no guaranteed interest. Check who issues it, what backs it and whether it publishes regular reserve reports.