What is a stablecoin? USDT and USDC explained
Most crypto prices you see, including on Ezetrad, are quoted in USDT. Here is what that is and why it matters.
A crypto token that tracks the dollar
A stablecoin is a crypto token designed to keep a steady value, usually one US dollar. It moves on a blockchain like any other coin, but its price is meant to stay at $1.
How they stay at $1
- Backed by reserves: USDT (Tether) and USDC (Circle) say each token is backed by dollars, short-term US government bonds and similar assets. Holders who meet the issuer's conditions can redeem tokens for dollars, which keeps the price close to $1.
- Backed by crypto: some stablecoins, like DAI, are backed by more crypto than they issue, managed by smart contracts.
- Algorithmic: some tried to hold $1 with code alone. The best-known, TerraUSD, collapsed in 2022.
Why prices are quoted in USDT
Exchanges use stablecoins as the "cash" of crypto: you can sell a coin into USDT without leaving the exchange or going through a bank. So BTC/USDT is effectively the Bitcoin price in dollars.
The risks
- Issuer risk: you rely on the company's reserves and honesty.
- De-pegging: in stress, a stablecoin can trade below $1 for a while. USDC briefly fell to about $0.88 in March 2023 when a bank holding part of its reserves failed.
- Regulation and freezing: issuers can freeze tokens, and rules differ by country.
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See crypto prices in USDTThis guide is educational and is not financial advice.
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Frequently asked questions
Is USDT the same as a dollar?
It is designed to be worth one dollar and usually is, but it is issued by a private company and carries its risks.
Why are crypto prices in USDT?
Exchanges use stablecoins as the dollar of crypto, so pairs like BTC/USDT show the price in dollars.