I've been seeing the word "stablecoin" in the news a lot lately. What exactly is it? Is it different from Bitcoin?
Simply put, it's a cryptocurrency whose value is fixed at $1. Unlike Bitcoin or Ethereum, which can fluctuate wildly by dozens of percent in a single day, stablecoins are designed to maintain a 1 coin = $1 peg by collateralizing real-world safe assets like the dollar or gold, or by using special systems. It's essentially the 'cash' of the cryptocurrency market.
But we could just use real dollars or fiat currency. I don't quite understand why it has to be converted into a coin.
It's to overcome the limitations of the traditional financial network (SWIFT) using blockchain technology. Traditional banks close on weekends, and overseas remittances take days and incur high fees. Stablecoin transfers are completed in minutes, anywhere in the world, 24/7.
Furthermore, by using Smart Contracts, programming code can be embedded directly into the money. For example, you can create an automated financial system without human intervention, like "automatically release the payment when Condition A is met."
Ah, so it's a kind of internet-only dollar. Is "stablecoin" the name of one specific coin?
No, just like "car" is a category that includes sedans and SUVs, "stablecoin" is a general term for any cryptocurrency designed to maintain a fixed value. USDT (Tether) and USDC (Circle), which track the U.S. dollar, currently account for over 90% of the market and are the most famous. However, there are also coins that track the Euro or gold prices.
Looking at the structure, it's a promise-based system where you give the issuing company (like Tether or Circle) real dollars and they give you coins. What if these companies suddenly refuse to return the dollars, like when the U.S. ended the gold standard in the 1970s? Wouldn't the whole system collapse?
That is an accurate point. In finance, this is called 'Counterparty Risk'. In fact, when Silicon Valley Bank (SVB)—where the USDC issuer held reserves—went bankrupt in 2023, the $1 promise broke, and the coin plummeted to $0.87 in a 'de-pegging' event. The Korean-led coin 'Terra/Luna', which relied purely on mathematical algorithms without collateral, became worthless overnight. That's why 'trust' in the issuer is everything in this market.
Issuing companies aren't charities, so how do they make money? Do they take a fee and give you fewer coins when you deposit $100?
When individuals buy on exchanges, they pay a fee to the exchange, not the issuer. While there is a small fee (about 0.1%) when institutional investors directly mint or redeem large amounts with the issuer, that's just a side income.
The real core profit model is 'investing in government bonds through zero-interest funding'. Tether holds tens of billions of dollars in deposits without paying a single cent of interest to its users. Its cost of borrowing is 0%. They use this money to buy U.S. short-term Treasury bills (T-bills) that yield 4–5% interest. It's a massive economy-of-scale business where they monopolize billions of dollars in interest revenue every year without taking on significant risk.
I see. So, over the past year, how much have USDT or USDC actually fluctuated against the dollar? Were there any precarious moments?
Looking strictly at the past year (2025–2026), they showed an extremely stable trend with
fluctuations of less than 1%. USDT moved within a tight range of about 0.28%, and USDC about 0.92%.
For reference, since the KRW/USD exchange rate has been fluctuating around 1,500 won, the prices on Korean exchanges might have seemed to jump around by dozens of won. However, that was an optical illusion caused by the depreciation of the won (exchange rate) and local demand ('Kimchi Premium'). The value against the dollar remained very solid. On the other hand, experimental coins with weak collateral (like USDe, USDX) either halved in value or were ousted from the market over the past year.
If those algorithmic coins you just mentioned aren't even stable, why are they called stablecoins?
The classification is based on the 'design purpose', not the 'result'. Just as a broken-down car is still called a car, a coin is classified under the historical umbrella of stablecoins (algorithmic/synthetic types) if its original mechanism was designed with the goal of maintaining a $1 peg, even if its value crashes and it ultimately fails.
I heard the U.S. passed a stablecoin law called the 'GENIUS Act'. What does it entail?
It's a law aimed at filtering out fake stablecoins and securing U.S. dollar dominance. There are exactly 5 core points:
- Strict 1:1 Reserve Requirement: Issuers must hold actual cash or U.S. Treasuries equal to the volume of coins minted, subject to monthly audits.
- Restricted Issuance Qualifications (PPSI): Only verified banks or highly trusted financial institutions with rigorous government approval can issue them.
- Exclusion from Securities Regulation: It eliminates regulatory risk by clarifying that approved stablecoins are 'payment instruments', not ambiguous 'securities'.
- Ban on Direct Interest Payments by Issuers: To prevent them from becoming investment products, issuers are legally barred from directly paying interest to users simply for holding the coin.
- Anti-Money Laundering (AML): It mandates technical capabilities to freeze or burn coins in wallets used for crimes upon government request.
The provisions are quite thorough. I heard traditional Wall Street banks are preparing to enter the market in earnest using this as an opening. How are they doing that?
From the banks' perspective, they can no longer sit back and watch crypto startups monopolize Treasury interest.
First, major banks like JPMorgan and Citigroup are issuing their own 'Deposit Tokens' to dominate corporate payment networks. Mega-banks that don't issue coins directly are expanding their Custody businesses, earning money by safely storing and managing the tens of billions of dollars in reserve assets for issuers like Circle (USDC). They are also building private blockchain consortiums where only institutions with verified identities (KYC) can participate.
It feels like the market is increasingly being absorbed into institutional finance. Finally, explain simply how an individual can earn higher interest with stablecoins than at a bank through 'DeFi'.
It's because the expensive intermediary—the
'bank'—is removed, and the code distributes that margin directly to the users. There are two main principles:
- Lending (Depositing into a Loan Pool): You lend your stablecoins to people who need to borrow dollars urgently and are willing to put up Bitcoin as collateral. The loan interest they pay comes straight to you without a bank taking a cut. (Typically yields around 4–10% annually).
- Liquidity Providing: You deposit your stablecoins into an automated exchange on the blockchain. Every time users around the world swap coins at that exchange, they pay a trading fee (0.05–0.3%), which is distributed to you second-by-second based on your share of the pool.
However, unlike bank deposits, you must always be aware of the risks: if the platform's code is hacked or the coin itself collapses, your principal is not protected.
