Day 9 — Stablecoins (the most-used product in crypto)
Here is a fact that surprises most people new to crypto: the volume of stablecoin transactions per month is now larger than PayPal's. By a meaningful margin. Stablecoins moved roughly $9 trillion in transactions in 2024 by some measures, more than Visa's annual settlement volume.
The product that does the most actual work in crypto is not Bitcoin. It is not NFTs. It is not whatever this week's hot launch is. It is dollars on the blockchain.
A stablecoin is a cryptocurrency designed to hold a stable value, almost always pegged to the US dollar (though stablecoins pegged to the euro, the yen, and even gold exist). The leading stablecoins, USDC and USDT, each maintain a price of approximately $1.00 in normal market conditions, regardless of what Bitcoin or Ethereum is doing.
The natural first question is: how? A volatile asset isn't stable just because someone says so. The peg has to be enforced by something. There are three main designs.
Fiat-backed stablecoins. The issuer holds actual US dollars (or short-term US Treasuries, money market instruments, and equivalent cash-like assets) in a bank or treasury account. For every USDC or USDT in circulation, there is approximately $1 of reserves somewhere. When you redeem a stablecoin with the issuer, they burn the token and send you the dollar. This is how Circle (the issuer of USDC) and Tether (the issuer of USDT) work. It is by far the dominant model. Roughly 95% of stablecoin supply is fiat-backed.
The trust model here is straightforward: you are trusting the issuer to actually hold the reserves they claim, to manage them safely, and to honor redemption. Circle publishes monthly attestations of reserves audited by a Big Four accounting firm. Tether publishes its own attestations, which have historically been less transparent but have improved over time. The issuer is a centralized choke point. If they fail, the peg fails.
Crypto-collateralized stablecoins. The issuer locks up crypto (typically ETH or other major assets) in a smart contract and issues stablecoins against that collateral, with significant over-collateralization (often 150%+) to absorb price swings. The leading example is DAI, issued by the MakerDAO protocol. If the collateral drops in value, the smart contract automatically liquidates some of it to maintain the peg.
The trust model here is different. You are not trusting a company. You are trusting a smart contract and the collateral that backs it. The tradeoff is capital efficiency. To issue $1 of DAI, you have to lock up $1.50 or more of crypto. The system works, but it is structurally limited in how much it can scale.
Algorithmic stablecoins. No backing assets. The peg is maintained entirely by code, typically by minting and burning a paired token to absorb price pressure. This is how UST (the TerraUSD stablecoin) worked. It is also how UST blew up in May 2022, taking roughly $40 billion of investor capital with it in less than a week. The death spiral, when it came, was almost mathematical: the pair token that was supposed to absorb downward pressure on UST itself collapsed as confidence broke, which forced more minting, which broke the peg further, which destroyed more confidence. By the time most retail holders woke up to what was happening, the system was unrecoverable.
After UST, the algorithmic stablecoin category effectively died. A few projects still call themselves algorithmic, but they all back the algorithm with significant real collateral now. The lesson the market took from UST is the lesson it should have taken: a peg without enforceable collateral is a peg held only by belief, and belief is a thin layer to build a $40B asset on.
So why do stablecoins matter? Three reasons.
They are the settlement rail. Most of the dollar volume in crypto trading happens in stablecoin pairs. Even when someone wants to buy Bitcoin, they often first move dollars onto an exchange, convert to USDC, then buy BTC. Stablecoins are also the rail for cross-border payments. Sending USDC from New York to Lagos takes 30 seconds and costs about a dollar. Sending the equivalent through traditional banking takes 3 to 5 business days and costs $20 to $50. The friction-reduction is not marginal. It is generational.
They are dollar access for people who can't get dollars. This is the most underappreciated part of the stablecoin story. In countries with capital controls, hyperinflation, or untrustworthy banking systems (Argentina, Lebanon, Venezuela, Nigeria, Turkey, parts of Russia), stablecoins are how regular people hold dollars. Walk through a Buenos Aires coffee shop in 2026 and you will overhear people checking their USDT balance. The use case did not exist five years ago. It is now the most consequential financial product of the decade for billions of people, even if you have never personally needed it.
They are the bridge to the regulated financial system. In 2025, the US passed the first comprehensive stablecoin legislation. The regulatory framework treats payment stablecoins more like money-market instruments than like crypto. This is a big deal. It means banks can hold them, institutions can use them at scale, and traditional payment companies (Stripe, Visa, Mastercard, PayPal) are all now integrating stablecoin rails directly into their products. The bridge from crypto to mainstream finance runs through stablecoins.
What does this mean for you as a participant? Practically:
- Use USDC or other regulated, audited fiat-backed stablecoins for your primary holdings. Tether (USDT) has more liquidity globally but has historically had less transparent backing. USDC is the institutional-grade choice in 2026.
- Treat DAI as a useful tool when you want to be on chain without the centralized issuer risk. It is structurally robust but has scaling limits.
- Be skeptical of any "high-yield stablecoin" offering 15%+ APY. There are legitimate yield-bearing stablecoins (Ondo's USDY, BlackRock's BUIDL, etc.) that pay roughly the US Treasury rate (~4-5% as of 2026). Anything paying much more than that is taking risk somewhere, and the risk is usually not transparent.
Tomorrow we look at where you actually buy and sell crypto. CEX versus DEX, the difference between Coinbase and Uniswap, and the cautionary tales (Mt. Gox, FTX) that explain why this distinction matters more than people think.
Glossary
| Term | Definition |
|---|---|
| Stablecoin | A cryptocurrency designed to hold a stable value, usually pegged to the US dollar. |
| Peg | The target price a stablecoin tries to maintain (typically $1.00). |
| Fiat-backed stablecoin | A stablecoin backed by actual dollars or cash-equivalent reserves held by the issuer. (USDC, USDT) |
| Crypto-collateralized stablecoin | A stablecoin backed by crypto assets locked in a smart contract, typically over-collateralized. (DAI) |
| Algorithmic stablecoin | A stablecoin that attempts to maintain its peg through algorithmic supply adjustment with little or no real backing. (Mostly dead post-UST.) |
| Over-collateralization | Backing $1 of stablecoin with more than $1 of collateral (often $1.50 or more) to absorb collateral price swings. |
| Depeg | When a stablecoin loses its target price and trades materially below it. UST's depeg in 2022 is the canonical example. |
| USDC | Circle's fiat-backed stablecoin. Most institutionally trusted in the US market. |
| USDT | Tether's fiat-backed stablecoin. Largest by global volume, historically less transparent. |
| DAI | MakerDAO's crypto-collateralized stablecoin. Decentralized, structurally robust, capital-inefficient. |
| Attestation | A formal report from an accountant confirming a stablecoin issuer holds the reserves they claim. |
Reality check
A friend tells you they're earning 20% APY on a "stablecoin yield product." What questions should you ask before you let them keep talking?
The answer is not "no, that's a scam." The answer is "where is the yield actually coming from?" If they can name the source and you can verify it on-chain (lending against over-collateralized loans, validator staking yield repackaged, real-world asset yield with a transparent issuer), it might be legitimate. If they can't name the source, or the source involves another token they have to hold to earn the yield, you're probably looking at a Ponzi structure. Apply this filter to every "stablecoin yield" pitch you see for the rest of your life and you will avoid most of the disasters in this space.
Read deeper
1. The different types of stablecoins explained by The Block
The taxonomy in one page.
Read on IMPCT (curated commentary) | Read original (theblock.co)
Deven's take. Read this when you want a clean reference of the three categories. The Block does a good job of laying out the structural differences without getting lost in the weeds. Pay attention to how the trust model changes across the three categories: trust the issuer (fiat-backed), trust the smart contract and collateral (crypto-collateralized), or trust the code and the market (algorithmic, RIP). Different products, different risk profiles, different reasons to use them.
2. What is USDC and how does it work? by The Block
The institutional-grade fiat-backed stablecoin.
Read on IMPCT (curated commentary) | Read original (theblock.co)
Deven's take. USDC is the closest thing crypto has to a regulated dollar. Circle, the issuer, publishes monthly attestations from a Big Four accounting firm. Most of the reserves sit in short-term US Treasuries managed by BlackRock. The product is structurally a tokenized money market fund with a $1 peg. When you're holding USDC, you are essentially holding a claim on a portfolio of short-duration government debt with a Circle wrapper. That is a substantively different thing from holding the dollar in your bank account, but in the post-SVB era it might actually be safer.
3. What is USDT and how does it work? by The Block
The largest and most-debated stablecoin.
Read on IMPCT (curated commentary) | Read original (theblock.co)
Deven's take. USDT (Tether) is fascinating because it should not work and it works incredibly well. For years Tether had less-transparent reserves than USDC, faced multiple investigations, paid significant settlements, and the peg held through all of it. Today Tether holds more US Treasuries than most sovereign nations and is one of the largest buyers of new Treasury issuance globally. The relationship between Tether and the US Treasury market is one of the most underreported financial stories of the last five years. Read this for the texture. Then form your own view about whether you want to hold it.
4. What are the advantages and disadvantages of stablecoins? by The Block
A fair-minded look at the category's tradeoffs.
Read on IMPCT (curated commentary) | Read original (theblock.co)
Deven's take. Useful as a balanced reference, particularly when you're explaining stablecoins to someone who is skeptical. The strongest argument against stablecoins (centralization risk, regulatory risk, depegging tail risk) is real and worth knowing. The strongest argument for them (programmable dollars, real-time settlement, financial inclusion at global scale) is also real and worth knowing. Hold both.
5. The UST / Terra Collapse (multiple sources)
The single most important case study in stablecoin risk.
Read on IMPCT (curated commentary) | Read external (Bloomberg has a strong retrospective; Coffeezilla on YouTube has the entertaining version)
Deven's take. If you want to understand stablecoin risk, study what happened to UST in May 2022. $40 billion of value disappeared in about a week. The mechanics are technical but the lessons are universal: a peg held only by algorithm and confidence is a peg held only by belief, and belief is fragile. The same dynamics that killed UST will kill the next algorithmic stablecoin that tries to scale. The category is mostly dead for good reason.
6. BlackRock BUIDL and Tokenized Treasury Funds (Securitize, BlackRock, Ondo)
The future of stablecoins is starting to look like tokenized money-market funds.
Deven's take. Worth knowing about because this is where the regulated, institutional stablecoin market is heading. BlackRock's BUIDL fund, Ondo's USDY, and similar products are essentially the next generation of stablecoins, just structured as tokenized money-market funds that pay the Treasury yield to holders. As regulatory clarity improves, expect this category to grow much faster than non-yielding stablecoins. The relevance for IMPCT specifically: these are the kinds of tokenized real-world assets we'll be working with in Week 4 and beyond.
Tomorrow
We look at where you actually trade. Centralized exchanges (Coinbase, Binance, Kraken) versus decentralized exchanges (Uniswap, Curve, dYdX). The cautionary tales (Mt. Gox, FTX) that explain why the distinction matters more than most users realize. And when each type makes sense to use.
See you in the morning.
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