{"id":145984,"date":"2018-10-29T09:11:41","date_gmt":"2018-10-29T09:11:41","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=145984"},"modified":"2026-06-11T16:18:53","modified_gmt":"2026-06-11T15:18:53","slug":"stablecoins","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/cryptocurrency\/stablecoins","title":{"rendered":"What is a stablecoin?"},"content":{"rendered":"<div id=\"ukfcyfixeddisclaimer\" class=\"visible no-margin-top\" data-template=\"masthead-two-columns\">\n<div id=\"ukfcyfixeddisclaimerbody\" class=\"text-center fin-text-white\" data-nosnippet><strong>Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. <u id=\"ukfcydscmdl\" onclick=\"ukfcyshowmodal();\">Take 2 mins to learn more<\/u>.<\/strong><\/div>\n<\/div>\n<style>\n@media (max-width: 767px) { .fixeddisclaimerbody { letter-spacing: -0.4px; } }\n@media (min-width: 1350px) { #page, #side-nav-container { padding-top: 24px !important; } .gn svg.w-\\[16px\\].h-\\[9px\\] { margin-top: 24px !important; } }\n@media (max-width: 1349px) and (min-width: 701px) { #page, #side-nav-container { padding-top: 48px !important; } .gn svg.w-\\[16px\\].h-\\[9px\\] { margin-top: 48px !important; } }\n@media (max-width: 700px) and (min-width: 481px) { #page, #side-nav-container { padding-top: 68px !important; } }\n@media (max-width: 480px) and (min-width: 381px) { #page, #side-nav-container { padding-top: 86px !important; } }\n@media (max-width: 380px) { #page, #side-nav-container { padding-top: 102px !important; } }\n#ukfcyfixeddisclaimer { top: 0; left: 0; position: fixed; right: 0; width: 100%; z-index: 40001; text-align: center; }\n#ukfcyfixeddisclaimerbody { line-height: 1.2; background-color: #6c7881; overflow: hidden; letter-spacing: -0.2px; padding: 4px 3px 5px 3px; }\n#ukfcymodal { z-index: 40002; }\n#ukfcymodalclosereal { z-index: 40003; position: fixed; left: 0; right: 0; top: 0; bottom: 0; }\n#modal-content { z-index: 40004; }\n.gn .nav-slideout--active { top: auto !important; }\n.gn .fixed { position: static !important; }\n#ukfcydscmdl { cursor: pointer; }\n<\/style>\n\n\n<div class=\"docsModal\">\n<section class=\"luna-modal\" aria-hidden=\"false\" role=\"dialog\" id=\"ukfcymodal\" aria-labelledby=\"modal-heading\" aria-describedby=\"modal-content\" tabindex=\"-1\">\n<div class=\"luna-modal__content\">\n<button id=\"ukfcymodalclose\" class=\"luna-modal__close\" type=\"button\" aria-label=\"Close modal\">\n<svg class=\"luna-icon\" aria-hidden=\"true\"><use xlink:href=\"#close\"><\/use><\/svg>\n<\/button>\n<div id=\"ukfcymodalclosereal\"><\/div>\n<div class=\"luna-modal__body\" id=\"modal-content\">\n<div class=\"luna-modal__wrapper\">\n\n<p><strong>Estimated reading time: 2 min<\/strong><\/p>\n\n<p>Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.<\/p>\n\n<h4 id=\"modal-heading\">What are the key risks?<\/h4>\n\n<p>1. You could lose all the money you invest<\/p>\n\n<ul> \n<li>The performance of most cryptoassets can be highly volatile, with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest in cryptoassets.<\/li>\n<li>The cryptoasset market is largely unregulated. There is a risk of losing money or any cryptoassets you purchase due to risks such as cyber-attacks, financial crime and firm failure.<\/li>\n<\/ul>\n\n<p>2. You should not expect to be protected if something goes wrong<\/p>\n\n<ul>\n<li>The Financial Services Compensation Scheme (FSCS) doesn't protect this type of investment because it's not a 'specified investment' under the UK regulatory regime \u2013 in other words, this type of investment isn't recognised as the sort of investment that the FSCS can protect. Learn more by using the FSCS <a href=\"https:\/\/www.fscs.org.uk\/check\/investmentprotection-checker\">investment protection checker<\/a>.<\/li>\n<li>The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA regulated firm, FOS may be able to consider it. Learn more about FOS protection <a href=\"https:\/\/www.financialombudsman.org.uk\/consumers\">here<\/a>.<\/li>\n<\/ul>\n\n<p>3. You may not be able to sell your investment when you want to<\/p>\n\n<ul>\n<li>There is no guarantee that investments in cryptoassets can be easily sold at any given time. The ability to sell a cryptoasset depends on various factors, including the supply and demand in the market at that time.<\/li>\n<li>Operational failings such as technology outages, cyber-attacks and comingling of funds could cause unwanted delay and you may be unable to sell your cryptoassets at the time you want.<\/li>\n<\/ul>\n\n<p>4. Cryptoasset investments can be complex<\/p>\n\n<ul>\n<li>Investments in cryptoassets can be complex, making it difficult to understand the risks associated with the investment.<\/li>\n<li>You should do your own research before investing. If something sounds too good to be true, it probably is.<\/li>\n<\/ul>\n\n<p>5. Don't put all your eggs in one basket<\/p>\n\n<ul>\n<li>Putting all your money into a single type of investment is risky. Spreading your money across different investments makes you less dependent on any one to do well.<\/li>\n<li>A good rule of thumb is not to invest more than 10% of your money in high-risk investments.<\/li>\n<\/ul>\n\n<p>If you are interested in learning more about how to protect yourself, visit the FCA's website <a href=\"https:\/\/www.fca.org.uk\/investsmart\">here<\/a>.<\/p>\n\n<p>For further information about cryptoassets, visit the FCA's website <a href=\"https:\/\/www.fca.org.uk\/investsmart\/crypto-basics\">here<\/a>.<\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n<\/div>\n\n\n<script>\nfunction ukfcyshowmodal() {\nvar infomodal = document.getElementById(\"ukfcymodal\");\ninfomodal.classList.add('is-visible');\ninfomodal.setAttribute(\"aria-hidden\", \"false\");\ndocument.getElementById(\"ukfcymodalclosereal\").addEventListener('click',function()\n{\nvar infomodal = document.getElementById(\"ukfcymodal\");\ninfomodal.classList.remove('is-visible');\ninfomodal.setAttribute(\"aria-hidden\", \"true\");\n});\n};\n<\/script><div class=\"keyTakeaways\">\n  <div class=\"keyTakeaways__header\">\n          <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"32\" height=\"21\" viewbox=\"0 0 314.16 201.03\" fill=\"none\">\n  <path d=\"M212.32,190.62c-19.66,0-38.8-6.44-54.42-18.24-15.63,11.79-34.77,18.24-54.42,18.24-49.84,0-90.39-40.55-90.39-90.39V9.83h199.24c49.84,0,90.39,40.55,90.39,90.39s-40.55,90.39-90.39,90.39Z\" fill=\"white\"><\/path>\n  <path d=\"M212.32,15.9c46.57,0,84.33,37.75,84.33,84.33h0c0,46.57-37.75,84.33-84.33,84.33h0c-20.75,0-39.74-7.51-54.42-19.94-14.69,12.43-33.68,19.94-54.42,19.94h0c-46.57,0-84.33-37.75-84.33-84.33V15.9h193.18M212.32,3.76H7.01v96.46c0,53.19,43.27,96.46,96.46,96.46,19.47,0,38.46-5.92,54.43-16.84,15.96,10.91,34.95,16.84,54.42,16.84,53.19,0,96.46-43.27,96.46-96.46S265.51,3.76,212.32,3.76h0Z\" fill=\"#232320\"><\/path>\n  <path d=\"M216.34,90.21c.19-1.69,1.76-2.87,3.43-2.6,11.91,1.94,22.41-7.31,20.93-20.1-.45-3.93-2.28-6.56-4.43-9.31-1.05-1.35-.74-3.34.71-4.26,15.6-9.82,31.64-1.91,40.78,13.29,11.21,18.64,11.54,47.15.53,65.94-15.41,26.3-42.91,23.48-56.04-3.04-6.09-12.29-7.47-26.4-5.92-39.93Z\" fill=\"#232320\"><\/path>\n  <path d=\"M105.92,90.21c.19-1.69,1.76-2.87,3.43-2.6,11.91,1.94,22.41-7.31,20.93-20.1-.45-3.93-2.28-6.56-4.43-9.31-1.05-1.35-.74-3.34.71-4.26,15.6-9.82,31.64-1.91,40.78,13.29,11.21,18.64,11.54,47.15.53,65.94-15.41,26.3-42.91,23.48-56.04-3.04-6.09-12.29-7.47-26.4-5.92-39.93Z\" fill=\"#232320\"><\/path>\n<\/svg>        <h3 data-toc=\"false\">Key takeaways<\/h3>\n  <\/div>\n\n    <ul>\n          <li>Stablecoins offer fixed prices by pegging to assets like the US dollar, providing stability to volatile crypto markets.<\/li>\n          <li>Fiat-backed stablecoins rely on external collateral and trust, while algorithmic types risk collapse as seen with Terra Luna\u2019s 2022 failure.<\/li>\n          <li>Stablecoins facilitate diverse financial uses like hedging against market volatility, but thorough project research remains essential.<\/li>\n      <\/ul>\n\n  \n  <\/div>\n<p>Bitcoin and nearly all other cryptocurrencies are notoriously volatile \u2013 capable of experiencing double-digit price swings in less than 24 hours. That\u2019s actually an attractive feature for speculative investors looking to profit from price movements, but it\u2019s one of the biggest barriers to the widespread adoption and legitimacy of cryptocurrency as\u2026 a currency! After all, how can you really use something as a currency when its value flucctuates so wildly?<\/p><p>Enter stablecoins. These fixed-price digital currencies provide stability and a much wider range of everyday use cases than cryptocurrencies currently enjoy, and there are now more than 50 stablecoin projects being developed around the world.<\/p><p>Here\u2019s how stablecoins work, the benefits they offer, why they\u2019re important and some of the most popular examples.<\/p><h3>What are stablecoins?<\/h3><p>A stablecoin is a cryptocurrency with a fixed price. While the price of most cryptocurrencies is determined by supply and demand, stablecoins are designed to achieve a constant, stable price.<\/p><p>The most common method stablecoins use to achieve price stability is to peg the value of their coin to a real-world asset, for example gold or the US dollar. However, there are also a couple of other approaches for designing stablecoins, and we\u2019ll explore all the options in detail a little further down the page.<\/p><p>These stablecoins may be backed by a real-life reserve of the thing they\u2019re pegged to, but that\u2019s not always a case. Plus the peg can break, as history has shown us. TerraUSD was unable to maintain its peg to the US dollar in 2022, and when this happened its value completely collapsed.<\/p><div class=\"fin-video fin-video--horizontal\" data-player-type=\"youtube\" data-video-id=\"8qI3g3wCJec\" style=\"\">\n    <div class=\"fin-video__container\">\n                    <img decoding=\"async\" class=\"fin-video__thumbnail\" src=\"https:\/\/img.youtube.com\/vi\/8qI3g3wCJec\/maxresdefault.jpg\" data-fallback-sd=\"https:\/\/img.youtube.com\/vi\/8qI3g3wCJec\/sddefault.jpg\" data-fallback-hq=\"https:\/\/img.youtube.com\/vi\/8qI3g3wCJec\/hqdefault.jpg\" alt=\"\" loading=\"lazy\">\n                            <div class=\"fin-video__duration\">4:28<\/div>\n                        <div class=\"fin-video__play-btn\" role=\"button\" aria-label=\"Play video\"><\/div>\n                <iframe allow=\"autoplay\" class=\"fin-video__player\" id=\"ytPlayer-8qI3g3wCJec\" title=\"Video player\"><\/iframe>\n    <\/div>\n        <\/div>\n<h3>Compare stablecoins side-by-side<\/h3><div class=\"tableui has-padding-bottom-x-small clearfix\">\n    <div class=\"form__panel content-area-grey tableui__panel\">\n                <div class=\"form__group-inline clearfix\">\n            <label for=\"tableui0000000000\" class=\"fin-text-blue form__label-inline\">Search by coin name<\/label>\n            <input id=\"tableui0000000000\" class=\"js-table-search pull-s-right form__input-text form__input-text--long\" type=\"text\" data-table=\"table:eq(0)\" placeholder=\"e.g. Tether\">\n        <\/div>\n                    <\/div>\n    <\/div>\n<p>The market caps of these stable coins flucctuates, but we\u2019ve tried to order this static table with the bigest first. With around ~60% of the total market at the time of writing, Tether is quite dominant.<\/p><div style=\"max-width: 100%; overflow-x: scroll;\"><table class=\"luna-table\"><thead class=\"luna-table__header\"><tr><th scope=\"col\">Coin<\/th><th scope=\"col\">Issued by<\/th><th scope=\"col\">Launch year<\/th><th scope=\"col\">Type<\/th><th scope=\"col\">Stability<\/th><\/tr><\/thead><tbody class=\"luna-table__body\"><tr><th scope=\"row\">Tether (USDT)<\/th><td>Tether (iFinex)<\/td><td>2014<\/td><td>Fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">USD Coin (USDC)<\/th><td>Circle<\/td><td>2018<\/td><td>Fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Ethena USDe (USDe)<\/th><td>Ethena Labs<\/td><td>2024<\/td><td>Synthetic (delta-neutral hedged)<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Dai (DAI)<\/th><td>MakerDAO \/ Sky<\/td><td>2017<\/td><td>Crypto-collateralised<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">World Liberty Financial USD (USD1)<\/th><td>World Liberty Financial<\/td><td>2025<\/td><td>Fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">PayPal USD (PYUSD)<\/th><td>Paxos (for PayPal)<\/td><td>2023<\/td><td>Fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Global Dollar (USDG)<\/th><td>Paxos<\/td><td>2024<\/td><td>Fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">USDD (USDD)<\/th><td>Tron DAO Reserve<\/td><td>2022<\/td><td>Crypto-collateralised \/ algorithmic<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Ripple USD (RLUSD)<\/th><td>Ripple<\/td><td>2024<\/td><td>Fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">First Digital USD (FDUSD)<\/th><td>First Digital Labs (HK)<\/td><td>2023<\/td><td>Fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Sky Dollar (USDS)<\/th><td>Sky (ex-MakerDAO)<\/td><td>2024<\/td><td>Crypto-collateralised<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">TrueUSD (TUSD)<\/th><td>Techteryx (ex-TrustToken)<\/td><td>2018<\/td><td>Fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Pax Dollar (USDP)<\/th><td>Paxos<\/td><td>2018<\/td><td>Fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Gemini Dollar (GUSD)<\/th><td>Gemini<\/td><td>2018<\/td><td>Fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Frax (FRAX)<\/th><td>Frax Finance<\/td><td>2020<\/td><td>Fractional-algorithmic (now fully collateralised)<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Ethena USDtb (USDtb)<\/th><td>Ethena Labs<\/td><td>2024<\/td><td>Fiat-backed (BlackRock BUIDL reserves)<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Usual USD (USD0)<\/th><td>Usual<\/td><td>2024<\/td><td>RWA \/ fiat-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Falcon USD (USDf)<\/th><td>Falcon Finance<\/td><td>2025<\/td><td>Over-collateralised \/ synthetic<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Ondo US Dollar Yield (USDY)<\/th><td>Ondo Finance<\/td><td>2023<\/td><td>RWA-backed (US Treasuries)<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Mountain Protocol USD (USDM)<\/th><td>Mountain Protocol<\/td><td>2023<\/td><td>RWA-backed (US Treasuries)<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">GHO (GHO)<\/th><td>Aave<\/td><td>2023<\/td><td>Crypto-collateralised<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">crvUSD (crvUSD)<\/th><td>Curve Finance<\/td><td>2023<\/td><td>Crypto-collateralised<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Liquity USD (LUSD)<\/th><td>Liquity<\/td><td>2021<\/td><td>Crypto-collateralised (ETH)<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Synthetix USD (sUSD)<\/th><td>Synthetix<\/td><td>2020<\/td><td>Crypto-collateralised<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Elixir deUSD (deUSD)<\/th><td>Elixir<\/td><td>2024<\/td><td>Synthetic \/ RWA-backed<\/td><td>Pegged to USD<\/td><\/tr><tr><th scope=\"row\">Euro Coin (EURC)<\/th><td>Circle<\/td><td>2022<\/td><td>Fiat-backed<\/td><td>Pegged to EUR<\/td><\/tr><tr><th scope=\"row\">Stasis Euro (EURS)<\/th><td>Stasis<\/td><td>2018<\/td><td>Fiat-backed<\/td><td>Pegged to EUR<\/td><\/tr><tr><th scope=\"row\">Tether Gold (XAUt)<\/th><td>Tether<\/td><td>2020<\/td><td>Commodity-backed<\/td><td>Pegged to 1 troy oz gold<\/td><\/tr><tr><th scope=\"row\">PAX Gold (PAXG)<\/th><td>Paxos<\/td><td>2019<\/td><td>Commodity-backed<\/td><td>Pegged to 1 troy oz gold<\/td><\/tr><tr><th scope=\"row\">Tether EURt (EURt)<\/th><td>Tether<\/td><td>2016<\/td><td>Fiat-backed<\/td><td>Pegged to EUR<\/td><\/tr><\/tbody><\/table><p>\u2026AND in May 2026, US banking app SoFi launched SoFiUSD, the first stablecoin issued by a US national bank to be offered directly on a consumer banking app \u2013 letting members buy, sell, hold and convert the token on Ethereum and Solana.<\/p><h3>How do stablecoins work?<\/h3><p>How do stablecoin creators achieve the price stability they desire? There are three different types of stablecoins, each with its own approach for ensuring minimal price fluctuations.<\/p><h4>Fiat-collateralised stablecoins<\/h4><p>This is the simplest method of creating a stablecoin and is used by <a href=\"https:\/\/www.finder.com\/uk\/cryptocurrency\/coins\/how-to-buy-tether\">Tether (USDT)<\/a>, one of the best-known stablecoins in existence today. Fiat-collateralised stablecoins are backed by a real-world asset, most commonly the US dollar or some other fiat currency but also a traditional asset such as gold. That asset is owned and held by a central entity, with each unit of the stablecoin backed by a corresponding unit of the fiat currency.<\/p><p>For example, a stablecoin issuer accepts deposits in USD and issues one unit of stablecoin for every dollar it receives \u2013 the digital currency is effectively an IOU issued on that asset. If you decide you want to cash out 1,000 units of stablecoin, the coin issuer transfers you US$1,000 and \u201cburns\u201d 1,000 stablecoins.<\/p><p>While this method is reasonably easy to understand and implement, its main downside is that it requires a high level of trust in the central entity that controls USD deposits and issues the stablecoin.<\/p><p>And trust can be hard to come by in the crypto world. For example, Tether has long been the subject of accusations that not only is it used to prop up the price of Bitcoin, but also that the company behind the currency (Tether Limited) doesn\u2019t have sufficient USD reserves to back up the supply of Tether.<\/p><h5>Pros and cons of fiat-collateralised stablecoins<\/h5><div class=\"u-grid\"><div class=\"u-grid__col u-1\/2@s\"><h6>Pros<\/h6><ul class=\"list-4\"><li>Easy to understand<\/li><li>Stablecoin\u2019s value should match the value of a real-world asset<\/li><\/ul><\/div><div class=\"u-grid__col u-1\/2@s\"><h6>Cons<\/h6><ul class=\"list-13\"><li>Required trust in third party to hold sufficient fiat collateral<\/li><li>Auditing required to make sure appropriate amount of collateral is being held \u2013 this can be slow and expensive<\/li><li>Uses a centralised structure that somewhat negates one of the key principles of cryptocurrency \u2013 decentralisation<\/li><li>Relies on traditional fiat currency payment systems, which are slower and more expensive than cryptocurrency<\/li><\/ul><\/div><\/div><h4>Crypto-collateralised stablecoins<\/h4><p>The concept of crypto-collateralised stablecoins is fairly similar to that of fiat-collateralised stablecoins, but with the obvious difference that they\u2019re backed by digital currency (or a basket of digital currencies).<\/p><p>They also need to account for the volatility of the cryptocurrency being offered as collateral. So while fiat-collateralised coins are backed on a 1:1 ratio by fiat deposits, crypto-backed stablecoin issuers hold crypto deposits of a ratio higher than 1:1. For example, you may need to deposit $500 worth of Ether (ETH) to access $250 worth of a stablecoin.<\/p><p>Because crypto-backed coins can be managed on-chain, there\u2019s no need to worry about entrusting your deposit to a third party. However, the biggest concern is the volatility of the underlying collateral, so the coin issuer must hold a substantial amount of collateral to protect against significant price drops.<\/p><h5>Pros and cons of crypto-collateralised stablecoins<\/h5><div class=\"u-grid\"><div class=\"u-grid__col u-1\/2@s\"><h6>Pros<\/h6><ul class=\"list-4\"><li>You don\u2019t have to entrust custody of your collateral to a third party \u2013 instead, collateral is locked up in a smart contract on the blockchain<\/li><li>Conducted on-chain, which ensures transparency and removes the need for third-party auditing that fiat-backed coins have<\/li><\/ul><\/div><div class=\"u-grid__col u-1\/2@s\"><h6>Cons<\/h6><ul class=\"list-13\"><li>Requires extra collateral to be secure against cryptocurrency volatility<\/li><li>Risk of the asset collateralising the stablecoin experiencing a significant decline in value<\/li><li>If backed by a basket of cryptocurrencies, selecting the right currencies to ensure price stability can be difficult<\/li><\/ul><\/div><\/div><h4>Seigniorage or algorithmic stablecoins<\/h4><p>Seigniorage stablecoins are controlled by an algorithm designed to match supply with demand in order to achieve price stability. Using smart contracts, supply is increased when the coin\u2019s price goes up and decreased when it goes down, thereby maintaining the stablecoin\u2019s price at a steady level.<\/p><p>For example, if the price of the stablecoin is trading at above $1 per unit, the algorithm issues additional units to increase overall supply until the price returns to $1. The profits collected in this process are known as seigniorage.<\/p><p>If the price falls below the $1 mark, the algorithm is designed to use seigniorage to buy up some of the coins, thereby decreasing supply and pushing the price back up to $1. If the price is still below $1 and there are no more profits left to buy more of the coin\u2019s supply, seigniorage shares are issued. These are basically bonds that raise funds for the coin issuer and promise future seigniorage profits to buyers.<\/p><p>While they still exist, the collapse of Terra Luna, arguably the leading seignorage-based stablecoin project, in 2022 proved extremely damaging to the reputation of this type of stablecoin.<\/p><h5>Pros and cons of seigniorage shares<\/h5><div class=\"u-grid\"><div class=\"u-grid__col u-1\/2@s\"><h6>Pros<\/h6><ul class=\"list-4\"><li>No collateral required<\/li><li>Theoretically protected against the volatility of other cryptocurrencies (however, a wider market downturn could lead to decreased demand for seigniorage shares)<\/li><\/ul><\/div><div class=\"u-grid__col u-1\/2@s\"><h6>Cons<\/h6><ul class=\"list-13\"><li>More complicated than other structures<\/li><li>Relies on future growth in demand for the stablecoin in order to be successful \u2013 if there is no seigniorage left and seigniorage shares can\u2019t be sold to raise funds, the price of the stablecoin could plummet<\/li><li>Largely unproven (and high-profile failures like Terra Luna)<\/li><\/ul><\/div><\/div><h4>Wait, I need a diagram!<\/h4><p>We don\u2019t blame you. Here\u2019s a good one: \u2013<\/p><figure class=\"luna-figure\"><img decoding=\"async\" class=\"luna-image aligncenter\" src=\"https:\/\/www.finder.com\/finder-us\/wp-uploads\/sites\/3\/2026\/06\/taxonomy_of_stablecoin_design_types.png\" width=\"807\" height=\"318\" alt=\"A taxonomy of the main stablecoin types\" srcset=\"https:\/\/www.finder.com\/finder-us\/wp-uploads\/sites\/3\/2026\/06\/taxonomy_of_stablecoin_design_types.png?fit=180 180w, https:\/\/www.finder.com\/finder-us\/wp-uploads\/sites\/3\/2026\/06\/taxonomy_of_stablecoin_design_types.png?fit=360 360w, https:\/\/www.finder.com\/finder-us\/wp-uploads\/sites\/3\/2026\/06\/taxonomy_of_stablecoin_design_types.png?fit=600 600w, https:\/\/www.finder.com\/finder-us\/wp-uploads\/sites\/3\/2026\/06\/taxonomy_of_stablecoin_design_types.png?fit=900 900w, https:\/\/www.finder.com\/finder-us\/wp-uploads\/sites\/3\/2026\/06\/taxonomy_of_stablecoin_design_types.png?fit=1200 1200w, https:\/\/www.finder.com\/finder-us\/wp-uploads\/sites\/3\/2026\/06\/taxonomy_of_stablecoin_design_types.png?fit=2421 2421w\" sizes=\"(max-width: 2421px) 100vw, 2421px\" loading=\"lazy\"><figcaption class=\"luna-caption\" align=\"center\">A taxonomy of the main stablecoin types <span class=\"luna-caption__credit\"><i>The State of Stablecoins<\/i>, Blockchain.com<\/span><\/figcaption><\/figure><h3>Why are stablecoins important?<\/h3><p>While Satoshi Nakamoto\u2019s vision for Bitcoin was as a form of electronic cash, the world\u2019s biggest cryptocurrency is rarely used as a medium of exchange on a day-to-day basis. Rather, its volatility and high fees mean that Bitcoin is impractical for everyday transactions, and is instead used more as a store of value.<\/p><p>The same can be said for most other digital currencies. Because prices fluctuate significantly from one day to the next, holding and using crypto in the same way you do pound sterling (getting paid a salary, paying for food, buying a coffee etc) simply isn\u2019t viable. Think about it \u2013 why would a business accept Bitcoin as payment when 1 BTC might be worth $10,000 today, but tomorrow its value could have dropped to $9,000?<\/p><p>And this is, in theory at least, where stablecoins offer a key advantage. Not only do they offer all the benefits of cryptocurrency, including cryptographic security and the ability to transfer value digitally, but they\u2019re designed to have the low volatility for which fiat currency is famous. The end result is a digital currency that can theoretically be used as a daily medium of exchange in the real world.<\/p><h3>Stablecoin uses<\/h3><p>What can stablecoins be used for? A price-stable cryptocurrency could potentially have a wide range of purposes, including:<\/p><ul><li><strong>Medium of exchange.<\/strong> A successful stablecoin could be used as a medium of exchange for everyday spending in the same way we currently use pound sterling.<\/li><li><strong>Protection against market volatility.<\/strong> When the crypto market is experiencing a downturn, shifting your money out of traditional digital currencies and into a stablecoin can help hedge against market volatility. This can be particularly useful if you <a href=\"https:\/\/www.finder.com\/uk\/cryptocurrency\/exchanges\">use a crypto exchange<\/a> that doesn\u2019t support fiat currency.<\/li><li><strong>Financial products.<\/strong> Stablecoins could potentially form the basis for a new financial ecosystem, including everything from crypto-backed loans and global remittances to insurance, as they provide the long-term stability required for many financial functions.<\/li><li><strong>Prediction markets.<\/strong> If you place a bet on the outcome of an event with a long timeframe, using a stablecoin allows you to minimise the impact of market volatility.<\/li><li><strong>Global access to a stable currency.<\/strong> In countries where the local currency is plagued by hyperinflation, holding a decentralised stablecoin could allow people to protect their wealth.<\/li><\/ul><h3>Bottom line<\/h3><p>There\u2019s little doubt that a working, trusted stablecoin is a key stepping stone on cryptocurrency\u2019s path to mainstream acceptance. However, this goal is still some way off.<\/p><p>There have been numerous examples of stablecoin projects that have simply failed to stand the test of time. Even Tether, the world\u2019s largest (in terms of market cap) stablecoin and one that\u2019s been around since 2015, has been plagued by accusations that it doesn\u2019t have sufficient US dollar reserves to back up the amount of USDT in circulation.<\/p><p>In <a href=\"https:\/\/www.blockchain.com\/research\" target=\"_blank\" rel=\"noopener noreferrer\"><i>The State of Stablecoins<\/i><\/a>, a report from wallet provider Blockchain released back in September 2018, the authors summed up the situation in the stablecoin market with words that ring true today, by saying:<\/p><blockquote><p>\u201cWhile there is a great deal of excitement surrounding stablecoins, the technology is still nascent and it is highly unlikely that the perfect stablecoin design exists at present; further experimentation (and innovation) is expected.\u201d<\/p><\/blockquote><p>While some stablecoins have been able to demonstrate short-term stability, only time will tell whether they\u2019ve got the goods to provide long-term reliability. Until that happens, don\u2019t assume that any cryptocurrency will be able to provide the same stability as good old-fashioned fiat currency. And if you\u2019re thinking of putting any of your hard-earned cash into a stablecoin project, make sure you thoroughly research it first.<\/p><h3>Frequently asked questions<\/h3><ul class=\"luna-accordionGroup accordionGroup\"><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000000\" data-toggle=\"collapse\" data-target=\"#accordion0000000000\">\n        <span class=\"luna-accordion__title\">Where can I buy stablecoins?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000000\" data-accordion=\"details\">\n    <div class=\"accordionContent\"><p>This depends on the coin you want to buy. While well-known stablecoins like Tether and Dai are listed on a <a href=\"https:\/\/www.finder.com\/uk\/cryptocurrency\/exchanges\">wide range of cryptocurrency exchanges<\/a>, many other coins are less widely available. Do your research to find out where you can buy your chosen currency.<\/p><\/div>\n  <\/div>\n<\/li><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000001\" data-toggle=\"collapse\" data-target=\"#accordion0000000001\">\n        <span class=\"luna-accordion__title\">How and where can I buy Tether?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000001\" data-accordion=\"details\">\n    <div class=\"accordionContent\"><p>You can find step-by-step instructions on this in our guide to <a href=\"https:\/\/www.finder.com\/uk\/cryptocurrency\/coins\/how-to-buy-tether\">how to buy USDT<\/a>.<\/p><\/div>\n  <\/div>\n<\/li><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000002\" data-toggle=\"collapse\" data-target=\"#accordion0000000002\">\n        <span class=\"luna-accordion__title\">Is bitcoin a stablecoin?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000002\" data-accordion=\"details\">\n    <div class=\"accordionContent\"><p>No, bitcoin is not a stablecoin. While bitcoin is known for its volatility, a stablecoin provides greater price stability by being pegged to another low-risk asset, such as gold or fiat currency.<\/p><\/div>\n  <\/div>\n<\/li><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000003\" data-toggle=\"collapse\" data-target=\"#accordion0000000003\">\n        <span class=\"luna-accordion__title\">What is the most popular stablecoin?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000003\" data-accordion=\"details\">\n    <div class=\"accordionContent\"><p>Tether (USDT) is the most widely used stablecoin and ranks among the top <a href=\"https:\/\/www.finder.com\/cryptocurrency\/exchanges\/top-cryptocurrencies\">cryptocurrencies<\/a> by market capitalization at the time of writing. A popular alternative is the USD Coin (USDC), which is pegged to the US dollar.<\/p><\/div>\n  <\/div>\n<\/li><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000004\" data-toggle=\"collapse\" data-target=\"#accordion0000000004\">\n        <span class=\"luna-accordion__title\">Is USD a stablecoin?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000004\" data-accordion=\"details\">\n    <div class=\"accordionContent\"><p>USD, as in referring to the US dollar, is not a stablecoin. It\u2019s the official fiat currency of the United States. However, the USD Coin (USDC) is a stablecoin that is pegged to the US dollar and issued by Circle.<\/p><\/div>\n  <\/div>\n<\/li><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000005\" data-toggle=\"collapse\" data-target=\"#accordion0000000005\">\n        <span class=\"luna-accordion__title\">What is the point of a stablecoin?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000005\" data-accordion=\"details\">\n    <div class=\"accordionContent\"><p>A stablecoin offers a lower-risk way of investing in the crypto market. Because stablecoins are designed to maintain a steady value, they allow investors to focus on long-term growth rather than the constant fluctuations of most cryptocurrencies.<\/p><\/div>\n  <\/div>\n<\/li><li class=\"luna-accordion\" data-accordion=\"accordion\">\n  <div class=\"luna-accordion__summary\">\n    <h4 class=\"luna-accordion__heading\">\n      <button class=\"luna-accordion__action collapsed\" aria-expanded=\"false\" aria-controls=\"accordion0000000006\" data-toggle=\"collapse\" data-target=\"#accordion0000000006\">\n        <span class=\"luna-accordion__title\">Why would I use stablecoins instead of fiat?<\/span>\n        <svg class=\"luna-icon\" aria-hidden=\"true\">\n          <use xlink:href=\"#chevron-down\" data-accordion-icon=\"show\"><\/use>\n          <use xlink:href=\"#chevron-up\" data-accordion-icon=\"hide\" class=\"is-hidden\"><\/use>\n        <\/svg>\n      <\/button>\n    <\/h4>\n  <\/div>\n  <div class=\"luna-accordion__details collapse\" aria-hidden=\"true\" id=\"accordion0000000006\" data-accordion=\"details\">\n    <div class=\"accordionContent\"><p>Stablecoins have a number of potential advantages over fiat currency. They can be transferred around the world quickly and without the need for a bank or other middleman and can be easily traded for other cryptocurrencies or used in decentralised finance (DeFi) applications.<\/p><\/div>\n  <\/div>\n<\/li><\/ul><article class=\"luna-card luna-card--alt\"><div class=\"luna-card__block has-padding-small\"><p class=\"has-margin-bottom-xsmall\">*Cryptocurrencies aren't regulated in the UK and there's no protection from the Financial Ombudsman or the Financial Services Compensation Scheme. Your capital is at risk. Capital gains tax on profits may apply.<\/p><p>Cryptocurrencies are speculative and investing in them involves significant risks - they're highly volatile, vulnerable to hacking and sensitive to secondary activity. The value of investments can fall as well as rise and you may get back less than you invested. Past performance is no guarantee of future results. This content shouldn't be interpreted as a recommendation to invest. Before you invest, you should get advice and decide whether the potential return outweighs the risks. Finder, or the author, may have holdings in the cryptocurrencies discussed.<\/p><\/div><\/article><\/div>","protected":false},"excerpt":{"rendered":"<p>A comprehensive overview of cryptocurrency stablecoins, including how they work, what they\u2019re used for and why they\u2019re important.<\/p>\n","protected":false},"author":1169,"featured_media":145996,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_yoast_wpseo_focuskw":"stablecoins","_yoast_wpseo_title":"30+ stablecoins compared and explained | Finder UK","_yoast_wpseo_metadesc":"Your detailed guide to stablecoins, what they are, how they work and how they could impact on the future of 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15:02:56\",\"timezone_offset\":\" +00:00\",\"last_update_summary\":\"We added a brief note about the launch of SoFiUSD.\"}","_last_major_update":"","feature_finder_bot_teaser_enabled":false,"feature_finder_bot_teaser_message":"","feature_finder_bot_teaser_placeholder":"","feature_finder_bot_teaser_suggestions":"","footnotes":""},"categories":[2153],"tags":[],"asset_tag":[],"class_list":["post-145984","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptocurrency"],"apple_news_notices":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.6 (Yoast SEO v27.6) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>30+ stablecoins compared and explained | Finder UK<\/title>\n<meta name=\"description\" content=\"Your detailed guide to stablecoins, what they are, how they work and how they could impact on the future of cryptocurrencies.\" \/>\n<meta name=\"robots\" content=\"index, follow, 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