Recently, the stock price of stablecoin issuer Circle surged nearly 10 times within 10 days of going public, making the term 'stablecoin' a hot topic. Clearly called 'stablecoin,' why could the issuing company skyrocket? How does this so-called 'digital dollar' manage to maintain its price stability? Today, we will use the simplest examples to help you understand the underlying logic of stablecoins.
Understanding the essence of stablecoins through coffee shop tokens.
A coffee shop suddenly introduced 'tokens': spending 100 yuan in cash can be exchanged for 100 tokens, where 1 token can be exchanged for 1 yuan's worth of coffee, and if you don't want to use it anymore, you can exchange it back for cash at any time. This is the prototype of stablecoins—issuers use commitments to ensure that digital tokens maintain a 1:1 exchange rate with fiat currency.
Some may say: isn't this just QQ coins? It's actually quite different. QQ coins can only be spent within the Tencent ecosystem and cannot be exchanged for cash, while the core of stablecoins is 'two-way free exchange,' which is key to being called 'digital cash.'
What makes stablecoins stable? Three core logics are indispensable.
Issuance must have a 'deposit'; legitimate stablecoins cannot be printed out of thin air. Just like coffee shop tokens must be exchanged for cash, mainstream stablecoins like USDT and USDC require that for every stablecoin issued, there must be 1 dollar (or equivalent bonds) stored in the bank, which users can redeem at any time. This is called the 'reserve mechanism.'
Value anchoring must be 'locked in.' The most common is pegging to the US dollar, but there are also pegged to gold or a basket of currencies. The issuer ensures that 1 stablecoin is always equal to 1 US dollar through reserve assets and redemption commitments, just like using a rope to anchor a boat to the shore; no matter how rough the waters, it won't drift away.
Circulation relies on 'blockchain technology.' Traditional transfers go through banks, and international remittances can take 3 days; stablecoins run on blockchain, with global transfers arriving in minutes and fees less than one-tenth of banks, as simple as sending a WeChat message.
Three categories of stablecoins PK: Who is the safest? Who is the 'time bomb'?
Currently, stablecoins in the market can be divided into three major categories, with vastly different risks:
Fiat currency collateral type: the most stable but relies on trust. Representatives: USDT (Tether) and USDC (issued by Circle). Each coin corresponds to 1 dollar in reserves, with prices stable as a rock, but you have to trust that the issuer hasn't secretly misappropriated the reserves—just like trusting that the coffee shop owner hasn't printed extra tokens.
Crypto asset collateral type: decentralized but 'costly.' Representative: DAI. To exchange for 100 DAI, you must first collateralize with 150 dollars' worth of Ethereum as 'collateral.' When prices fluctuate, the system will automatically auction off collateral to stop losses—completely transparent but with low capital utilization, equivalent to 'collateralizing 150 yuan to borrow 100 yuan.'
Algorithmic stablecoins: when it goes wrong, it's a disaster. Representative: the former UST. Without any collateral, it relies solely on algorithms to adjust supply and demand. In 2022, UST collapsed, evaporating 40 billion dollars overnight, likened to the 'Titanic' of the crypto world, still sending shivers down spines today.
Why did Circle surge? Where is the future of stablecoins?
Circle's USDC is the second-largest stablecoin globally, with a market value exceeding 300 billion dollars. Its surge is essentially due to the market's optimism that stablecoins will become the 'infrastructure of the digital economy'—stable like cash, yet efficient like blockchain, and may reshape cross-border payments, international trade, and even central bank digital currencies in the future.
However, risks cannot be ignored: tightening regulatory policies, lack of transparency in reserves, and technical vulnerabilities can all trigger crises. Just like coffee shop tokens, if the owner runs away or the tokens are overissued, the coins in hand become worthless.
From coffee shop tokens to a digital dollar with a market value of hundreds of billions, the story of stablecoins has only just begun. Are they disruptors of financial innovation, or a 'bubble' to be wary of? Perhaps time will give us the answer, but understanding its logic is the first step to seizing the next opportunity.
