What is a stablecoin?
A stablecoin is a token designed to keep a fixed value, almost always $1. ETH or BTC can move 10% in a day; a healthy stablecoin stays within a fraction of a cent of its target.
That makes it the unit of account of DeFi. Prices are quoted in it, loans are taken in it, and traders who are "in stables" have sold volatile tokens without leaving the blockchain or waiting for a bank transfer.
Trading pair
ETH/USDC gives a clear dollar price, and most DEX liquidity sits in stablecoin pairs.
Parking value
Step out of volatile assets in one swap, and back in when you choose.
Payments
Send dollars worldwide in seconds. On layer 2 networks, a transfer usually costs cents.
Lending
Lending protocols pay variable interest on stablecoin deposits, with contract risk attached.
How stablecoins hold their peg
| Type | How the peg holds | Examples | Main risk |
|---|---|---|---|
| Fiat-backed | An issuer holds cash and short-term government bonds and redeems 1 token for $1. Arbitrage between the market and redemption keeps the price near $1. | USDC, USDT, PYUSD | The issuer and its banks; tokens can be frozen |
| Crypto-backed | Users lock more crypto than they mint (for example $150 of ETH for $100 of stablecoin). Positions that fall below the threshold are liquidated. | DAI, LUSD, GHO, crvUSD | Contract bugs, oracle failures, crashes faster than liquidations |
| Algorithmic | Supply expands and contracts through incentives instead of full collateral. Hybrids mix the two. | FRAX (originally hybrid), UST (collapsed) | Loss of confidence can trigger a death spiral |
Fiat-backed coins are the simplest and the largest by far, but you trust a company and its banks. Crypto-backed coins run on public contracts with no issuer to freeze them, at the cost of more complex mechanics. Purely algorithmic designs have the worst track record.
The major dollar stablecoins
| Token | Issuer | Backing | Issuer can freeze |
|---|---|---|---|
| USDC | Circle | Cash and short-term US Treasuries | Yes |
| USDT | Tether | Mostly US Treasuries, plus other assets | Yes |
| DAI | Sky (formerly MakerDAO) | Over-collateralized crypto and real-world assets, including USDC | No |
| LUSD | Liquity | ETH only, immutable contracts | No |
Depegs and other risks
- Issuer and banking risk. Fiat-backed coins are only as good as their reserves and the institutions holding them.
- Freezing. Circle and Tether can freeze tokens at specific addresses and have done so at the request of authorities.
- Contract and oracle risk. Crypto-backed coins depend on liquidation contracts and price feeds working during a crash.
- Regulation. Rules are still changing. In 2023, New York's regulator ordered Paxos to stop minting BUSD, which then wound down.
A simple rule: do not keep everything in one stablecoin. Spreading across issuers and designs means a single depeg hurts part of your holdings, not all of it.
Swapping stablecoins on ChainBridge
Stablecoin pairs are the cheapest trades on ChainBridge. When both sides are recognized USD stablecoins, the platform fee drops to the lowest tier whatever the size, and auto slippage is set tight because the price should barely move.
- Platform fee
- 0.01%
- Stablecoin pairs, any size
- Auto slippage
- 0.05%
- Plus half the price impact
- Fee on $10,000
- $1
- Example
- Aggregators compared
- 3
- 0x, KyberSwap, ParaSwap
Connect and check the network
Make sure your wallet is on the network where the stablecoins are, and that you hold a little gas.
Pick the pair
For example USDT to USDC. Watch for the native versus bridged version of the token you want.
Check the rate
Expect close to 1:1. A rate far from it (say more than 0.5% off) points to a depeg or a thin pool: look before you sign.
Approve and swap
The transaction is simulated first; on layer 2 networks it confirms in a second or two.
The full fee schedule is in Swap fees explained.