Can a stablecoin lose its peg?

Yes — and it has happened. The most dramatic example was TerraUSD (UST) in May 2022, an algorithmic stablecoin that lost its $1 peg and collapsed to near-zero within days, destroying approximately $40 billion in value. Fiat-backed stablecoins like USDT and USDC have maintained their pegs through extreme market stress, though both experienced brief deviations during the 2023 banking crisis (USDC dropped to $0.87 temporarily when Silicon Valley Bank collapsed, as Circle had funds deposited there). A well-backed stablecoin from a solvent issuer is far more stable than an algorithmic one.

Are stablecoins regulated?

Regulation is evolving rapidly. In the US, the GENIUS Act (2025) created the first comprehensive federal stablecoin framework, requiring reserve backing, audits, and licensing for issuers. The EU's MiCA framework, effective 2024, imposes similar requirements on stablecoin issuers operating in Europe. In most other jurisdictions, stablecoin regulation is still developing. USDT issued by Tether (registered in El Salvador) and USDC issued by Circle (a US-registered, NYSE-listed company) have different regulatory profiles — USDC is generally considered more regulated under US law.

What is the difference between a stablecoin and regular cryptocurrency?

Regular cryptocurrencies (Bitcoin, Ethereum, TRX) have market-determined prices that fluctuate based on supply and demand — they can gain or lose significant value in hours. Stablecoins are designed to maintain a fixed value, usually $1.00. The price stability is the entire point: stablecoins are not investments, they are digital cash. The tradeoff is that you do not benefit from price appreciation, but you also do not suffer price crashes — making them suitable for payments, savings in dollar terms, and as a stable unit of account for trades.

Tether reports that USDT is backed by a reserve of assets that it publishes quarterly in attestation reports. As of recent reporting, the backing consists primarily of US Treasury bills and cash equivalents (approximately 80-85%), with smaller amounts of other assets including secured loans, corporate bonds, and Bitcoin. Tether has never published a full independent audit, which is a persistent criticism. However, Tether has redeemed billions of USDT for dollars on request during market stress events, providing practical evidence of reserve adequacy.

What Is a Stablecoin? USDT, USDC and How They Work (2026 Guide)

The Problem Stablecoins Solve

In 2017, Bitcoin's price ranged from $1,000 to $20,000 in a single year. That is extraordinary as an investment — and completely impractical as a currency. If a contractor in the Philippines invoiced a client in Bitcoin and the payment took three days to confirm, the value received could be 30% higher or lower than when the invoice was sent. No business can operate with that kind of uncertainty in its receivables.

Stablecoins were created to give people the benefits of blockchain technology — instant transfers, no banks, global accessibility, programmability — without the volatility that makes cryptocurrencies impractical as money. The solution was straightforward: create a token that always represents one dollar, backed by one dollar in reserves. You get the transfer speed and accessibility of crypto with the stability of cash.

This turned out to be enormously valuable. Not primarily for the use cases that early crypto enthusiasts imagined — decentralised finance, smart contract automation — but for the oldest use case in finance: moving money from one person to another cheaply and quickly across borders.

How the $1 Peg Actually Works

The most common stablecoin model is fiat-backed: for every stablecoin token in circulation, the issuer holds approximately one dollar in reserves. When someone wants to create new stablecoins, they deposit dollars with the issuer and receive tokens. When they want to redeem, the process reverses. The reserves always match or exceed the token supply.

Market arbitrage enforces the peg in practice. If USDT traded at $0.99, traders would buy it cheaply and redeem it with Tether for $1.00, making $0.01 profit per token and driving the price back up. If it traded at $1.01, traders would create new tokens for $1.00 and sell them at the premium, driving the price back down. This arbitrage mechanism, combined with the reserve backing, keeps the price extremely close to $1.00 under normal conditions.

Types of Stablecoins: Backed, Algorithmic, Crypto-Backed

Fiat-backed stablecoins (USDT, USDC, PYUSD) hold dollars or dollar-equivalent assets in reserve. They are the most reliable and battle-tested model. The risk is issuer risk — the backing is only as good as the company holding the reserves.

Algorithmic stablecoins maintain their peg through algorithms that expand and contract token supply in response to price movements, without full dollar backing. TerraUSD (UST) was the most prominent example — it catastrophically failed in May 2022 when confidence collapsed and the algorithm could not maintain the peg, destroying roughly $40 billion in value in days.

Crypto-backed stablecoins (DAI) hold overcollateralised cryptocurrency positions as backing — if you deposit $150 worth of Ethereum, you might receive $100 DAI. They are more decentralised but more complex and carry liquidation risk during sharp market downturns.

For practical everyday use — transfers, savings, remittances — fiat-backed stablecoins from established issuers are the appropriate choice. Algorithmic stablecoins have proven far too risky for money you cannot afford to lose.

USDT vs USDC: The Two Dominant Stablecoins

USDT (Tether) and USDC (Circle) together represent over 85% of the stablecoin market. They serve broadly the same purpose but have different profiles. USDT is larger ($155 billion vs approximately $50 billion for USDC), more widely supported on P2P platforms and exchanges globally, dominant on Tron, and more frequently used in emerging markets. Circle is US-registered, NYSE-listed, and publishes monthly attestations with more detailed reserve disclosures — making it preferred for institutional and regulated applications.

For most practical uses — remittances, P2P trading, savings in emerging markets — USDT has broader support and deeper liquidity. For users who prioritise regulatory clarity and are in US-regulated contexts, USDC's compliance posture is an advantage.

Why Most Stablecoin Transactions Happen on Tron

Tether issues USDT on multiple blockchains, but the Tron TRC-20 version processes the most transactions globally. The reason is fees and speed: Tron confirms in 3-5 seconds and charges approximately $1.20 per USDT transfer with Energy delegation, versus $3-20+ on Ethereum depending on network congestion. For the high-frequency, often smaller-value transfers that characterise real-world USDT use — a Gulf worker sending remittances, a Nigerian P2P trader releasing escrow, a Turkish saver moving funds — Tron's cost and speed profile is significantly better.

The 9 TRX difference between sending USDT without Energy (13 TRX) and with Energy from TronNRG (4 TRX) is the specific optimisation that separates experienced Tron USDT users from newcomers. It applies equally to USDT and to any future stablecoin issued on Tron.

Using Stablecoins in Practice

For most people, the practical steps for using USDT on Tron are: download TronLink or Trust Wallet, create a wallet and back up your seed phrase securely, buy USDT and TRX on an exchange (or receive them from someone), and you are ready to send. Before every outgoing USDT transfer, load Energy through TronNRG (4 TRX, 3 seconds) to cut the network fee from 13 TRX to 4 TRX. That is essentially the full setup for a functional, cost-optimised stablecoin payment capability accessible from any smartphone.

USING STABLECOINS ON TRON? THE FEE IS OPTIONAL.

13 TRX without Energy. 4 TRX with TronNRG. Same transfer, same speed, 70% lower cost. 3 seconds of preparation before every send.

GET ENERGY AT TRONNRG →

What Is a Stablecoin? USDT, USDC and How They Actually Work