The core function of stablecoins is to bring the value of the US dollar onto the blockchain. They serve not only crypto transactions but are also increasingly used in DeFi, cross-border transfers, and on-chain settlements; therefore, their pegging mechanism and reserve quality have become key areas of market focus.
Three mainstream anchoring methods
The most common type is the fiat currency reserve stablecoin. The issuer holds highly liquid assets such as cash or short-term government bonds on a 1:1 basis and then issues tokens based on these assets. As long as users can redeem their tokens at face value, the token price typically fluctuates around $1. USDT, USDC, and RLUSD all belong to this category.
The second type is crypto-asset-backed stablecoins. These products lock crypto assets such as ETH into smart contracts and issue stablecoins through over-collateralization. Because the price of the collateral fluctuates, the system needs to maintain a safety buffer and automatically liquidate when the collateral ratio is insufficient; DAI is a representative example.
The third category is algorithmic stablecoins. These tokens primarily rely on programs to regulate supply to maintain price, rather than on sufficient reserves. The article mentions that after TerraUSD de-pegged and collapsed in 2022, market acceptance of this model declined significantly.
What are the differences between USDT, USDC, and RLUSD?
USDT and USDC are currently the most representative USD stablecoins, and RLUSD also adopts a similar reserve-backed model. What they have in common is that they both attempt to map on-chain tokens to real-world USD assets to support circulation and redemption.
The differences among these stablecoins mainly lie in the quality of their reserve assets, transparency of information disclosure, redemption arrangements, and the creditworthiness of the issuer. For users, whether a stablecoin can maintain a value of $1 in the long term depends not only on its design philosophy but also on whether its reserves are genuine, sufficient, and liquid.
Risks related to decoupling and issuer issues still need to be monitored.
The article points out that stablecoins are not equivalent to risk-free assets. The most direct risk is depegging, which means the price deviates from the peg to $1. If the market suspects insufficient reserves, redemptions are hindered, or the price of the collateralized assets falls rapidly, stablecoins may experience significant volatility.
Furthermore, fiat-backed stablecoins rely on centralized institutions to safeguard assets and handle redemptions, making reserve audits, custody arrangements, and regulatory requirements crucial. Crypto-collateralized stablecoins, on the other hand, depend more on smart contracts and liquidation mechanisms, and may also be under pressure during extreme market conditions.
As stablecoins have grown in scale, these tokens are no longer just trading tools, but are increasingly being used for payments, remittances, and cross-border settlements. To determine whether a stablecoin is reliable, one should first look at what it relies on to maintain its value at $1, and then consider its market size and scope of use.
