What is a stablecoin?
A stablecoin is a cryptocurrency meant to hold a fixed value — usually 1 US dollar. It is used to park money inside the crypto world without switching back to ordinary money. The value is not guaranteed by any state. It depends on the issuer actually holding the reserves — or on a mechanism working. If the peg fails, a stablecoin can fall a long way. That happened to TerraUSD in May 2022.
Normally the price sits at 1 $. If trust disappears, it can fall a long way — like TerraUSD in May 2022.
Two kinds of peg
- Backed by reserves: The issuer promises to hold 1 dollar in cash or short-term government bonds for every coin. The largest stablecoins work this way. They are only as safe as the reserves — and the issuer.
- Algorithmic: No reserves, but a program meant to hold the price by creating and removing coins. TerraUSD was one of these. When trust vanished in May 2022, it fell from 1 dollar to a few cents in a short time.
Not the same as dollars in your account
Money in a bank account in the EU is covered by deposit insurance up to 100,000 € if the bank fails. A stablecoin is not. You have a claim on the issuer — or on a program. If the issuer fails, or the reserves turn out to be missing, there is no guarantee.
The EU's MiCA rules, fully in force since 30 December 2024, set requirements for stablecoin issuers in the EU: they must be authorised, hold reserves and be able to redeem at full value. That makes them more transparent. It does not make them risk-free.
When the price is not 1.00
A stablecoin is not supposed to move. If it drifts more than a little from 1 dollar, it is a sign the market doubts the peg. Small drifts have happened several times to large stablecoins when doubts arose about their reserves. Usually they came back. TerraUSD never did.
And remember: even when the peg holds, what you own is dollars. If the dollar falls against your own currency, your value falls too. That is ordinary currency risk.
The typical beginner's mistake
Believing a stablecoin is as safe as cash because it shows 1.00 every day. It shows 1.00 as long as people believe in the reserves. TerraUSD also showed 1.00 every day — until May 2022.
How you see it in Kiggo
Kiggo does not show stablecoins on the colour map under Market → Crypto — they are not supposed to move, so they would just be grey. The map shows the 25 largest coins without them, refreshed every 15 seconds. Crypto is part of Kiggo Plus, and Kiggo never recommends buying or selling.
Related terms
Frequently asked questions
Can a stablecoin lose its peg?
Yes. It has happened briefly to large stablecoins when doubts arose about their reserves — and permanently to TerraUSD in May 2022, which fell to a few cents.
What is MiCA?
The EU's rules for crypto-assets, fully in force since 30 December 2024. They set requirements for stablecoin issuers and for crypto exchanges that want to offer their services in the EU. The rules are about licences, reserves and disclosure — not about protecting you from price falls.
Do you earn interest on a stablecoin?
Not on the coin itself. The issuer earns the interest on the reserves. If someone offers you a return on your stablecoin, the money comes from somewhere else — with a risk you need to understand first.
Kiggo explains — Kiggo does not advise. We never tell you what to buy or sell, and key figures can only be compared between companies in the same industry. The decision is yours. Last updated 2026-09-23.
Written by Claus Frisch, founder of Kiggo. Not an adviser, not a bank — Kiggo explains, you decide.
