What are stablecoins? How they work and what the risks are

Stablecoins are cryptocurrencies created to have a stable price, almost always pegged to the US dollar. The best-known example is USDT. In this guide, you'll learn what stablecoins are, how they try to hold their price, which types exist and, above all, which risks hardly anyone mentions.

What stablecoins are

The name says it all: a stable coin. The idea is to keep the advantages of a cryptocurrency, such as fast transfers that work 24 hours a day, without bitcoin's price roller coaster.

In most cases, 1 unit of the stablecoin is designed to be worth 1 dollar. There are also stablecoins pegged to the euro, to gold and to other references, but dollar ones are by far the most used.

One detail to keep in mind: stable means stable against the dollar. If you live in Brazil and budget in reais, the price still changes every day, along with the exchange rate. More on that in what USDT is and what it's used for.

Types of stablecoins

Backed by cash and bonds

These are the most common. A company issues the stablecoin and says it keeps reserves of equal value, in cash, short-term government bonds and other assets. Tether's USDT and Circle's USDC are examples.

Backed by other cryptocurrencies

Here, the reserves are other cryptocurrencies, locked in automated contracts on the blockchain. Since those cryptocurrencies swing a lot, the system requires more collateral than the amount issued. For example: the equivalent of 150 dollars in crypto is locked up to issue 100 dollars in stablecoins.

Algorithmic

These try to hold their price with programming rules alone, without full reserves. They are the riskiest. The best-known case is TerraUSD, which lost its dollar peg in 2022 and collapsed within a few days, taking a lot of people's money with it.

How stablecoins hold their price

For stablecoins with reserves, the mechanism is a direct swap with the issuer:

• when someone hands 1 dollar to the issuer, they receive 1 newly issued stablecoin;
• when someone returns 1 stablecoin, they get 1 dollar back.

If the market price falls below 1 dollar, it pays to buy cheap and redeem with the issuer. If it rises above, it pays to issue new coins and sell them. This back-and-forth, called arbitrage, pushes the price back toward 1 dollar.

In practice, only large clients deal directly with the issuer. But the mere possibility of that swap already helps hold the price for everyone.

The risks of stablecoins

Stable doesn't mean risk-free. Here are the main risks.

Reserve risk

Everything depends on the reserves existing, being of good quality and being quick to turn into cash. If the reserves are smaller than promised, or hard to sell, the stablecoin can lose its peg.

That's why transparency matters. Serious issuers publish reports on their reserves. But there's a difference between an attestation, which checks the reserves at one point in time, and a full audit, which examines the whole company. In USDT's case, Tether publishes attestations and announced in 2026 that it had hired a major firm for its first full audit.

Issuer risk

A stablecoin is a company's promise. Problems at the company, with its partner banks or with the law can affect the coin. In 2023, for example, USDC traded below 1 dollar for a few days after a US bank where Circle held part of its reserves collapsed.

USDT also traded below 1 dollar for a few hours during moments of market panic in 2022. In both cases the price recovered, but it shows that the peg can wobble.

Freezing risk

The issuers of the main stablecoins can freeze the balance held at specific addresses. Tether has frozen funds many times, usually at the request of authorities, in cases linked to crime or sanctions. That helps fight fraud, but it means your balance, in practice, depends on the issuer's rules.

Network and bridge risk

A stablecoin can circulate on several blockchains. On some, it's issued directly by the issuer. On others, what circulates is a version created by a bridge: a system that holds the original coin and issues a copy on another network. That's the case for USDT on BNB Smart Chain. The bridged version also depends on whoever runs the bridge. See the differences between networks in which network to use to receive USDT.

Regulatory risk

Governments are writing rules for stablecoins. The United States passed a specific law in 2025, and the European Union has applied its own rules since 2024. New rules can change who may issue a stablecoin, where each coin can be traded and how platforms work with it.

Currency and transfer risk

If you think in reais, there's also currency risk: if the dollar falls, your balance in reais falls with it. And, as with any crypto, a transfer sent to the wrong address or network can't be undone.

Are stablecoins covered by the FGC?

No. Brazil's Fundo Garantidor de Créditos (FGC), the deposit insurance fund, protects certain deposits at Brazilian banks and financial institutions. Stablecoins and other cryptocurrencies are not covered.

How to use stablecoins more safely

• Understand who issues the coin and how it holds its price.
• Keep it in a well-protected wallet. See crypto wallets: how to choose and protect one.
• Check the network and address before every transfer.
• Be wary of any promise of high returns on stablecoins. See the most common USDT and Pix scams.

Where usdtap fits in

usdtap converts Brazilian reais into USDT and sends it to your own wallet, on TRON, Ethereum or BNB Smart Chain. Your account balance stays in reais until you decide to convert, and the screen shows the exchange rate, the fee and how much USDT arrives before every transfer. To learn more, visit usdtap.

Frequently asked questions

Is a stablecoin an investment?

Not in the sense of earning a return. A stablecoin is designed to hold its value against a reference, such as the dollar, not to appreciate. If you think in reais, its value goes up or down with the exchange rate.

What's the difference between USDT and USDC?

Both are dollar-pegged stablecoins backed by reserves, but they're issued by different companies: USDT by Tether and USDC by Circle. Each company has its own reserves, reports and rules.

Can a stablecoin lose its value?

Yes. If the reserves fall short, if the issuer runs into trouble or if there's panic in the market, the price can drop below its reference. It has happened to several stablecoins, briefly in some cases and for good in others.

Are stablecoins protected by Brazil's FGC?

No. The FGC protects certain deposits at Brazilian banks and financial institutions. Cryptocurrencies, including stablecoins, are not covered.

Can the issuer freeze my stablecoins?

Yes. The issuers of the main stablecoins can freeze specific addresses, which they usually do at the request of authorities in cases of crime or sanctions.