Stablecoins Explained

I’ve watched this exact setup play out before.

A financial product starts as a crypto-native tool, gets dismissed as a toy for degens, then quietly grows until traditional institutions can’t ignore it. With stablecoins now moving more daily volume than Visa, and Bloomberg adding them to the Terminal, we’re past the dismissal phase.

Stablecoins explained in the simplest terms: they’re crypto tokens pegged to real-world currencies — usually the U.S. dollar. One USDT or USDC is designed to stay worth exactly one dollar. They let you move dollars on blockchains without touching a bank, 24/7, across borders, nearly instantly.

That sounds boring until you realize the scale. The stablecoin market cap sits above $180 billion, and daily transaction volume regularly exceeds what Visa processes. This isn’t a side project anymore. It’s infrastructure.

But the peg is only half the story. The real action — and the real risk — lives in what backs them, who controls them, and what happens when the model breaks.

How Does a Stablecoin Actually Stay Stable?

There are three main models, and only one has survived at scale.

Fiat-backed stablecoins are the dominant breed. Tether (USDT) and Circle (USDC) both promise that for every token in circulation, they hold a real dollar (or dollar equivalent) in reserve. You send them a dollar, they mint a token. You redeem the token, they burn it and give you back the dollar. Simple on paper.

The catch: trust. You’re trusting the issuer actually has the reserves, that they’re liquid, and that they’ll honor redemptions when it matters. Tether has faced years of skepticism about transparency. Circle publishes monthly attestations but not full audits. Trust scales differently than code.

Crypto-backed stablecoins like DAI use other crypto assets as collateral, often over-collateralized to absorb volatility. Put up $150 of ETH, mint $100 of DAI. If ETH crashes, the system liquidates your collateral before the peg breaks. More transparent, more decentralized, but capital-inefficient and vulnerable to cascading liquidations in a crash.

Algorithmic stablecoins tried to maintain the peg through code alone — minting and burning tokens based on demand, backed by nothing but game theory. Terra’s UST was the flagship. It hit a $18 billion market cap, then collapsed to zero in 72 hours when the mechanism broke under stress. That’s not a peg. That’s a death spiral with a whitepaper.

Why Two Companies Control 90% of the Market

Tether launched in . USDC launched in . Together, they command over $160 billion of the stablecoin supply. The rest is rounding error.

Network effects explain most of it. Stablecoins need liquidity to work — deep order books, wide exchange support, predictable redemption. USDT and USDC have that. A new stablecoin without liquidity trades at a discount the moment someone tries to move size. Bootstrapping trust and liquidity simultaneously is brutally hard.

Tether dominates offshore and in markets where regulatory clarity is thin. It’s the grease in the crypto machine — the pair against every altcoin, the settlement layer for exchanges that can’t touch real banking. Circle’s USDC skews more institutional and U.S.-friendly, with clearer attestations and tighter compliance.

Stablecoins are boring until they’re not — and when they’re not, billions evaporate faster than any traditional bank run.

The duopoly also captures something else: yield. Both Tether and Circle earn billions by investing reserves in short-term Treasuries and other safe assets. When rates were near zero, that income was modest. With rates above 4%, the business model prints money. Tether’s profit in recent quarters rivals the net income of many mid-sized banks — all from managing collateral.

What Open USD Changes About the Model

Open USD isn’t another USDC clone. It’s launching with a different approach: radically transparent reserves, real-time proof of backing, and a model that shares yield with users instead of capturing it for the issuer.

That last part matters. Tether and Circle keep the interest. Open USD’s design passes it through. For most casual users, a few basis points of yield won’t move behavior. But for institutions moving billions, yield on idle stablecoin balances changes the game. It turns stablecoins from a settlement tool into a cash management product.

Whether it works depends on execution — custody partners, regulatory strategy, liquidity buildout. But the fact that a credible challenger is trying a fundamentally different model shows the category is still evolving. The duopoly isn’t guaranteed forever.

Why Bloomberg Adding Stablecoins to the Terminal Matters

Bloomberg Terminals cost over $20,000 a year. They’re the infrastructure layer for institutional finance — bonds, equities, FX, commodities. If a market isn’t on the Terminal, it’s not real to most institutional desks.

Stablecoins are now on the Terminal. Supply data, on-chain flows, velocity metrics. That’s not hype. That’s Bloomberg telling its client base — hedge funds, banks, asset managers — that stablecoins are infrastructure worth monitoring.

It also signals something deeper: stablecoins are becoming plumbing. Treasury desks care about where dollars flow, how fast, and at what cost. On-chain settlement is faster and cheaper than correspondent banking for many corridors. Once institutions see the data next to traditional payment rails, the comparison gets uncomfortable for legacy systems.

Stablecoin	Market Cap	Backing Model	Yield to Holder
Tether (USDT)	~$120B	Fiat reserves	0%
USDC	~$40B	Fiat reserves	0%
DAI	~$5B	Crypto-collateral	Variable via DSR
Open USD	Launching	Fiat reserves	Yes (passthrough)

What Happens When Stablecoins Aren’t Stable?

The peg breaks. Usually small — a few cents. Sometimes catastrophically.

In March , USDC briefly traded below 88 cents after Silicon Valley Bank collapsed. Circle held a portion of reserves there. The market panicked. The peg snapped back within days once the FDIC backstopped deposits, but for 48 hours, “stable” was a lie.

UST didn’t come back. It hit zero. Billions vaporized. The difference: one was a liquidity scare with solvent backing. The other was a design flaw masked as innovation. Stablecoins explained honestly means admitting some models are fragile by construction.

For end users, the lesson is simple: check the backing, know the issuer, and understand that “stable” is a target, not a guarantee. The bigger the issuer and the deeper the liquidity, the faster any deviation gets arbitraged away. Small, untested stablecoins trade at discounts for a reason.

Are stablecoins actually backed 1:1 by real dollars?

Depends on the issuer. USDC publishes monthly attestations showing reserves match supply. Tether has historically been less transparent, though recent reports show mostly Treasuries and cash equivalents. The key word is “equivalents” — not all reserves are pure cash, and liquidity matters in a crisis. Always check the latest disclosures, not marketing claims.

Why would I use a stablecoin instead of just holding dollars?

Speed, cost, and access. Stablecoins settle in minutes globally, 24/7, with fees often below 1%. Traditional wire transfers take days and cost $25-$50. For cross-border payments, remittances, or moving between exchanges, stablecoins are often the only practical option. You’re trading bank infrastructure for blockchain infrastructure.

What’s the biggest risk with holding stablecoins?

Counterparty risk and regulatory uncertainty. You’re trusting the issuer’s reserves, custody, and willingness to redeem. If the issuer fails or gets shut down, your token could be worthless regardless of what the reserves say. Unlike FDIC insurance on bank deposits, most stablecoins have no government backstop. Treat them as what they are: uninsured digital IOUs, not cash.