Stablecoin – Opportunities and Risks Behind "Stable Currency"

In the crypto world, stablecoin is becoming a potential alternative to volatile coins like Bitcoin or Ethereum. True to its name, stablecoin aims to maintain stable value, often pegged to a real asset such as fiat ( – most commonly the USD – or gold. The popular stablecoins today include: Tether )USDT(, USD Coin )USDC(, DAI, TrueUSD )TUSD(, and PayPal USD )PYUSD(. They are issued by financial institutions or technology companies and are backed by corresponding reserves such as cash, US Treasury bonds, gold, or equivalent assets. Why Are Stablecoins Popular? Maintain stable value: Most stablecoins maintain a price around 1 USD, helping investors avoid significant fluctuations in the crypto market. Easy access: Users do not need a bank account to own. Protect assets in high inflation countries: Stablecoins help preserve the value of assets when the local currency depreciates. Fast and cheap cross-border money transfers: Quicker and less expensive than traditional USD transfers. Widely used in DeFi: Rewards, collateral loans, or trading between assets without needing to convert to fiat. However, stablecoins are not entirely "perfectly safe" as many people think. Below are 3 major risks that investors need to be aware of.

1. Not All Stablecoins Are Backed By Real Assets Most large stablecoins like Tether )USDT( or Tether Gold )XAUT( are backed by real assets – for example cash, U.S. government bonds, or physical gold. However, there are also other stablecoins that are riskier: Crypto-backed stablecoin: For example, DAI, which is backed by other cryptocurrencies like Ether )ETH(, Wrapped Bitcoin )WBTC(, USDT... When the crypto market experiences a significant decline, the value of the collateral can drop sharply, undermining the ability to maintain a peg to 1 USD. Algorithmic stablecoin: Maintains value through supply-demand adjustment algorithms. A typical example is TerraUSD )UST(, which collapsed in 2022 when its price stabilization mechanism failed, causing losses of tens of billions of USD. Lesson learned: Don't just look at the price of 1 USD and think that stablecoin is "absolutely safe". Be sure to understand the collateral mechanism and the level of transparency of the issuing organization.
2. Risks from Policies and Legal Regulations Stablecoin is developing so rapidly that it is attracting the attention of global regulators. In the near future: The government may tighten licensing, auditing, and reporting requirements. Some risky stablecoins, especially algorithmic ones, may be banned. The central bank may view stablecoins as a threat to the national currency, thereby imposing restrictions. This can directly affect the liquidity and circulation of stablecoin.
3. Not Designed to Be Inflation-Resistant Stablecoin pegged to USD only preserves value and does not grow. Meanwhile, USD also loses value over time due to inflation.

For example: The S&P 500 index has grown at an average rate of about 10% per year since 1957, while stablecoin remains at 0% unless invested for profit. The only way to earn profits from stablecoin is to lend it out or deposit it on crypto platforms. However: High profits ) even two digits ( often come with partner risks. Many large platforms like Celsius, Voyager, BlockFi went bankrupt in 2022, causing investors to lose all stablecoins deposited. Should You Buy Stablecoin Now? Stablecoin is suitable if you need: Temporarily preserve capital. Fast, cheap international money transfers. Participate in DeFi or trade crypto flexibly. But they are not long-term investment channels to combat inflation and still carry risks related to legality, collateral mechanisms, as well as risks when depositing to earn interest. Advice: Before "putting down money", make sure to thoroughly research the type of stablecoin you intend to buy, the transparency level of the issuing organization, and only allocate funds at a reasonable level.