Different ways to target stability
Some stablecoins are backed by reserves held by an issuer. Others use crypto collateral or more complex mechanisms. The design determines where the main risks sit.
A stable price target does not make a stablecoin equivalent to money held in a bank account.
What to research
Important questions include who issues the asset, what backs it, how reserves are reported, whether holders have redemption rights and which blockchain networks support it.
Liquidity and the ability to move between the stablecoin and its reference currency also matter.
Main risks
Stablecoins can lose their peg. Issuer failure, weak reserves, redemption limits, smart-contract failures and network problems can all affect access or value.
The word stable describes the target, not a guarantee.
General information only. Investment products can lose value, and terms, fees and regulation can change.