Stablecoin
A cryptocurrency pegged to a fiat currency (such as the US dollar).
Key points
- A stablecoin is a category of crypto designed to hold a stable value relative to an external reference, almost always a fiat currency like the dollar.
- Unlike Bitcoin, whose price fluctuates freely, a stablecoin such as USDC or USDT aims to always be worth approximately one dollar.
- It is the main settlement instrument for international payments and decentralized finance, including crypto off-ramp operations to reais via PIX.
What is a stablecoin?
A stablecoin is a crypto designed to hold a stable value relative to an external reference, typically a fiat currency like the dollar. The practical goal is to enable transfers, custody, and settlement in crypto without exposure to the volatility typical of assets like Bitcoin. A stablecoin thus functions as a digital layer of stable money.
How it works
Stability comes from the backing mechanism. In fiat-collateralized stablecoins, each unit issued is backed by equivalent reserves, such as deposits and short-term bonds, held by an issuer. The holder trusts they can redeem the stablecoin for the reference value at any time, and that expectation sustains the market parity.
There are other designs. Crypto-collateralized stablecoins use digital assets in excess as collateral, with automatic liquidation when the collateral's value drops. Algorithmic stablecoins try to maintain parity solely through supply and demand rules, without direct backing, a model that has already failed abruptly in the past.
Parity is maintained in practice through arbitrage: when the price drifts from the reference, traders buy or redeem the stablecoin to profit from the difference, pushing the price back.
Types
- Fiat-collateralized: backed by reserves in traditional currency.
- Crypto-collateralized: secured by digital assets in excess.
- Algorithmic: sustained by supply rules, without direct backing.
Why it matters
For those who receive or pay across countries, a stablecoin is the instrument that carries stable value in crypto until the moment of conversion. A freelancer who invoices in dollars can receive in USDC and convert to reais via crypto off-ramp whenever they want, without maintaining exposure to market swings during the process.
Risks and limitations
Stability depends on the quality and transparency of the reserves: if the backing is insufficient or illiquid, a stablecoin can lose its parity, known as a depeg. Add to that custody risks from the issuer, the risk of funds being frozen at the issuer's discretion, and, in the case of algorithmic stablecoins, the risk of a chain-reaction collapse when trust disappears.