Bitcoin can swing 10% in a day. Stablecoins promise something radically duller: a cryptocurrency worth exactly one US dollar, today, tomorrow, and next year. That boring promise made them the plumbing of the entire crypto economy — and, quietly, a tool thousands of Pakistanis use to hold and move dollars. Here's how stablecoins work, how USDT and USDC keep their $1 peg, and where the risks really are.
What is a stablecoin, in plain words?
A stablecoin is a cryptocurrency designed to hold a steady value, almost always pegged 1:1 to the US dollar. One USDT (Tether) or one USDC (USD Coin) is meant to be redeemable for, and trade at, $1 — combining the dollar's stability with crypto's speed: transfers settle in minutes, 24/7, across borders, without a bank in the middle.
The point isn't speculation. Nobody buys stablecoins hoping they double. They buy them to park dollars between trades, to send dollars cheaply, and — in countries with volatile currencies — to hold dollars without a dollar bank account.
How the $1 peg actually works
USDT and USDC use the fiat-backed model, which works like a currency board:
- Reserves: the issuer holds roughly $1 of reserve assets (cash, Treasury bills and equivalents) for every token in circulation, and publishes attestations of those reserves.
- Mint and burn: deposit $1 million with the issuer, and 1 million new tokens are minted; redeem tokens, and they're destroyed ("burned") as dollars go out. Supply expands and contracts with real demand.
- Arbitrage: if USDT slips to $0.99 on an exchange, traders buy it cheap and redeem it with the issuer for $1.00, pocketing the cent. That buying pressure pushes the market price back up. The same works in reverse above $1.
The peg holds because redemption is a credible promise: as long as markets believe the issuer really has the dollars and will really honour redemptions, arbitrage keeps the price glued near $1. The moment that belief wavers, the mechanism strains — which is exactly what the risk section below is about.
USDT vs USDC: the two giants compared
| USDT (Tether) | USDC (Circle) | |
|---|---|---|
| Issuer | Tether Holdings | Circle (US-regulated) |
| Launched | 2014 — the original stablecoin | 2018 |
| Scale | Largest stablecoin by circulation | Second largest |
| Reserve transparency | Quarterly attestations; historically criticised | Monthly attestations; generally seen as the cleaner book |
| Where it's dominant | Emerging-market trading, P2P, remittances | US institutions, DeFi, regulated on-ramps |
The practical difference: USDT is the liquidity king — accepted almost everywhere crypto trades, and the default "dollar" on P2P markets across Asia, Africa and Latin America. USDC is the compliance favourite — issued by a US-regulated company with cleaner audits, preferred by institutions and fintech apps. For a Pakistani freelancer receiving payment, USDT's ubiquity usually wins; for a company treasury, USDC's paperwork usually does.
Other peg designs — and the one that blew up
Not all stablecoins hold dollar reserves. Crypto-backed stablecoins like DAI are collateralised by other crypto locked in smart contracts (over-collateralised to absorb volatility). Algorithmic stablecoins tried to hold the peg with code alone — no real dollars behind them.
The algorithmic experiment ended in May 2022 with TerraUSD (UST). UST's peg relied on a sister token, LUNA, and a mint-burn loop that worked until confidence broke: a wave of redemptions crashed LUNA, which destroyed the backing, which triggered more redemptions — a death spiral that wiped out roughly $40 billion in days. The lesson, now textbook: a peg without real, redeemable reserves is a promise the market can call in all at once.
What people actually use stablecoins for
- Trading: the base pair of crypto markets — traders park profits in USDT/USDC between positions instead of cashing out to banks.
- Remittances: sending $500 in USDT costs cents and arrives in minutes, versus wire fees and multi-day waits. Our interbank vs open market explainer shows what the formal channels charge — stablecoins bypass both rates entirely.
- Dollar savings without a dollar account: this is the Pakistan story. Freelancers, remote workers and small exporters increasingly receive pay in USDT — a dollar-denominated balance that doesn't melt when the rupee slides, held in a phone wallet instead of a bank.
- DeFi: lending, borrowing and yield strategies are all denominated in stablecoins, the system's unit of account.
Convert it yourself: Compare dollar values across currencies with our currency converter — and explore more live money data on the FIGURES hub.
