Stablecoins have exploded onto the scene, facilitating trillions of dollars in transactions for millions of people worldwide. Yet their definitions — and our collective understanding of them — remain somewhat blurry. At their core, [[Stable Coins]] are stores of value and media of exchange, often pegged to the U.S. dollar (but not always). Some are backed by straightforward bank deposits, others by crypto assets in decentralized lending protocols, and others by active financial strategies. In many ways, stablecoins resemble traditional banknotes and deposits, but come in a more transparent and self-custodiable form. In this short piece, we’ll walk through the main types of stablecoins, highlight key differences, and share why they matter. ![[Stable Coins.png]] --- ### **Three Key Facts & Differentiators** 1. **They Come in Three Flavors** There are [[fiat-backed stablecoins]] (centralized tokens redeemable 1:1 for dollars), [[asset-backed stablecoins]] (decentralized tokens collateralized by on-chain assets), and [[strategy-backed synthetic dollars]] (actively managed investments in dollar form). Each has its own risk profile, level of transparency, and regulatory considerations. 2. **They’re Already Huge** Stablecoins make up over $160B of on-chain money. Fiat-backed coins dominate the space (over 94% market share). This reflects our collective trust in simple redemption for real-world dollars and reveals how regulation, audits, and brand reputation still shape our decisions. 3. **They Mirror Banking History** From early American banknotes to modern [[fractional-reserve banking]], stablecoins have parallels that help us understand potential pitfalls and opportunities. Over time, we can expect more complex lending practices on-chain, broader collateral options, and eventually more ways to expand the money supply through decentralized protocols — a speedrun of centuries of banking evolution. [[Lessons from early american banking for stablecoins - when a dollar was not always a dollar]] --- ### **So What?** If you’re exploring stablecoins for your business or personal finances, remember three things. - First, **clarify how a token is backed**: Are you looking for the simplicity and security of fiat-backed coins, or are you comfortable with on-chain collateral and the protocols that govern them? - Second, **weigh the transparency**: Some stablecoins let you peek under the hood (thanks to decentralized smart contracts), while others rely on audits and trust. - Finally, **keep an eye on yield-bearing synthetic dollars**, but be aware that higher returns usually mean more risk. > Ultimately, stablecoins aren’t just another piece of crypto jargon — they’re a fast-evolving, globally accessible form of money that can unlock frictionless payments and new financial opportunities. Think of them as digital dollars that are still finding their place, but poised to reshape how we transfer, store, and grow value. Ref: [[Themes shaping 2025#5. Strategic Reserves and the DeFi Revolution Bitcoin and Stablecoins Take Center Stage]] | [[DeFi MOC]]