What Are Stablecoins: A Quick Guide to the Future of Digital Currency

A simple understanding of stablecoin

Stablecoins are a type of cryptocurrency that is pegged to the US dollar, euro, or gold, aiming to maintain a stable price, usually corresponding at a 1:1 ratio.

How does the stabilization mechanism work?

• Reserve Support: Each token is backed by real fiat currency or government bonds.
• Algorithm Adjustment: Automatically adjusts supply and demand through algorithms to maintain value, but with higher risks.

Why it’s suitable for beginners

• Compared to the more volatile cryptocurrencies, stablecoins are safer and more suitable as a first step.
• Low transfer costs and fast speed, especially suitable for cross-border payments.
• In high-inflation countries, people often use stablecoins as a hedge.

Latest news and regulatory developments

In 2025, the U.S. Congress passed the GENIUS Act, requiring stablecoins to have sufficient reserves and increased transparency to prevent market risks. At the same time, the BIS stated that stablecoins without unified regulation could undermine financial stability. Nobel laureate Jean Tirole even warned that stablecoins could trigger a panic run similar to the 2008 financial crisis.

Summary: Key Points

• Stablecoin: A Digital Money that is pegged to an asset and maintains price stability.
• Advantages: Convenient, safe, suitable for beginners.
• Risk: A lack of regulation may lead to systemic issues.