Stablecoins are the settlement layer of crypto trading. Most pairs are quoted against one, they are how traders sit in cash without leaving the market, and they move value between exchanges far faster than a bank transfer. Their entire usefulness rests on the peg holding.
How it is held varies, and the difference matters. Fiat-backed coins keep reserves of cash and short-term government debt with a custodian, so the peg depends on those reserves existing and being redeemable. Crypto-collateralised coins are over-collateralised with volatile assets and defended by liquidations. Algorithmic designs, which held their peg through incentives rather than assets, have failed repeatedly and at scale.
Can a stablecoin lose its peg?
Yes. Fiat-backed coins have traded below a dollar during doubts about their reserves or their banking partners, and algorithmic designs have collapsed entirely. A peg is a claim to be monitored, not a property of the token.
Last updated October 17, 2026