In the world of cryptocurrencies, stablecoins are becoming a potential alternative to highly volatile cryptocurrencies like Bitcoin or Ethereum. True to their name, stablecoins aim to maintain stable value, often pegged to a real asset such as fiat currency – most commonly the USD – or gold.

Some popular stablecoins today include: Tether (USDT), USD Coin (USDC), DAI, TrueUSD (TUSD), and PayPal USD (PYUSD). They are issued by financial institutions or tech companies and are backed by corresponding reserves such as cash, US Treasury bonds, gold, or equivalent assets.

  • Maintain stable value: Most stablecoins maintain a price of around 1 USD, helping investors avoid large fluctuations in the crypto market.

  • Easy to access: Users do not need a bank account to own.

  • Protect assets in high inflation countries: Stablecoins help preserve asset value when the local currency depreciates.

  • Fast and cheap cross-border money transfers: Faster and cheaper than traditional USD transfers.

  • Widely used in DeFi: Rewards, collateral loans, or trading between assets without needing to convert to fiat currency.

However, stablecoins are not entirely 'absolutely safe' as many people think. Below are 3 major risks that investors need to be aware of.

1. Not All Stablecoins Are Backed By Real Assets

Most major stablecoins like Tether (USDT) or Tether Gold (XAUT) are backed by real assets – such as cash, US government bonds, or physical gold.

But there are also other riskier types of stablecoins:

  • Crypto-backed stablecoins: For example, DAI, which is backed by other cryptocurrencies such as Ether (ETH), Wrapped Bitcoin (WBTC), USDT... When the crypto market declines sharply, the value of the collateral assets may drop significantly, undermining the ability to maintain the 1 USD peg.

  • Algorithmic stablecoins: Maintain value through supply-demand adjusting algorithms. A notable example is TerraUSD (UST), which collapsed in 2022 when its price stabilization mechanism failed, causing losses of tens of billions of USD.

Lesson learned: Don’t just look at the 1 USD price and think that stablecoins are 'absolutely safe'. Understand the backing mechanism and the transparency level of the issuing organization.

Stablecoins are developing rapidly to the extent that they are attracting the attention of global regulatory bodies. In the near future:

  • Governments may tighten licensing, auditing, and reporting requirements.

  • Some risky stablecoins, especially algorithmic ones, may be banned.

  • Central banks may view stablecoins as a threat to national currency, thereby imposing restrictive measures.

This could directly affect the liquidity and circulation of stablecoins.

3. Not Designed To Combat Inflation

USD-pegged stablecoins should only preserve value, not grow. Meanwhile, the USD also depreciates over time due to inflation.

For example: The S&P 500 index has averaged around 10% growth per year since 1957, while stablecoins remain at 0% unless invested for profit.

The only way for stablecoins to generate profits is through lending or depositing on crypto platforms. However:

  • High returns (even double digits) often come with counterparty risks.

  • Many major platforms like Celsius, Voyager, BlockFi went bankrupt in 2022, causing investors to lose their deposited stablecoins.

Should You Buy Stablecoins Now?

Stablecoins are suitable if you need:

  • Temporarily preserve capital.

  • Fast, cheap international money transfers.

  • Participate in DeFi or trade crypto flexibly.

But they are not a long-term investment channel to combat inflation and still carry legal, backing mechanism, and deposit risk for interest.

Advice: Before 'investing', carefully research the type of stablecoin you intend to buy, the transparency of the issuing organization, and only allocate capital at a reasonable level.