EPISODE 88 — What Is a Stablecoin — and Which One Should You Trust?

In May 2022, TerraUSD was an $18 billion stablecoin pegged to the US dollar. Within 72 hours it had collapsed to near zero. Billions were permanently wiped out. Hundreds of thousands of investors lost everything they had put into what was supposed to be a stable, dollar-pegged asset. The collapse was not caused by a hack or fraud — it was caused by a fundamental design flaw in how TerraUSD maintained its peg. Understanding stablecoins — exactly how different types work, what backs them, and what their specific failure modes are — is one of the most practically important things any crypto investor can learn.

In this episode of Crypto for Beginners, we explain all three main stablecoin types and give you a clear framework for assessing the risk of each. We start with fiat-backed stablecoins — USDC and USDT — explaining how they are backed by dollars and short-term US government securities held in reserve. We cover the key differences: the transparency of reserves, regulatory standing, audit quality, and what the brief USDC de-peg during the Silicon Valley Bank crisis of March 2023 revealed about even the most trusted stablecoins when their underlying bank partners face stress.

We cover crypto-backed stablecoins like DAI and USDS — how over-collateralisation absorbs price volatility, how liquidation mechanisms maintain solvency, and what the governance decisions around collateral types mean for stability. We cover synthetic stablecoins like Ethena's USDe — how delta-neutral hedging creates dollar stability without dollar reserves, where the yield comes from, and what happens when funding rates turn negative. We explain algorithmic stablecoins: what they are, why TerraUSD's specific design was structurally fragile, and why this category carries the highest risk profile. We end with a practical guide to choosing the right stablecoin for different purposes in 2026.

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