Stablecoins are digital currencies designed to maintain parity with a fiat currency, usually the US dollar or some other strong currency. Although they may seem similar at first glance, each has unique mechanisms for issuance, reserves, governance, and specific use purposes.

This makes understanding those differences essential for assessing risks, utility, and security, especially within the framework of DeFi applications and institutional use in Latin American markets.

Three ways to maintain 1 USD on the blockchain

There are three main models to ensure that a stablecoin maintains its value. The first is the fiat-backed model, as seen with USDT and USDC. Each token is backed by real reserves in cash or liquid assets—for example, US Treasury bonds—held in regulated banks. Trust in this model directly depends on the transparency in the management of those reserves and the regulatory framework surrounding the issuer.

The second model is that of crypto-collateralized stablecoins, like DAI. Here, issuance depends on smart contracts: users lock volatile cryptocurrencies like ETH or wBTC in "smart vaults" to generate DAI. The system requires over-collateralization—for example, 150 USD in ETH to issue 100 USD in DAI—as a cushion against market volatility.

The third model is algorithmic, where stability depends on algorithms that automatically adjust supply and demand. This approach lost much credibility after the collapse of UST/Terra in 2022, so it is still considered experimental.

The three protagonists: USDT, USDC, and DAI

USDT

Issued by Tether Holdings, based in Hong Kong—it is the most widely used stablecoin in the world. Thanks to its extensive integration in centralized exchanges and low-cost blockchains like Tron and Polygon, it is very popular in Latin America for trading, remittances, and arbitrage. Although Tether has improved in transparency since 2021, its history includes sanctions and doubts about the reserves backing each token.

USDC

Issued by Circle, it is the preferred stablecoin in institutional environments. It operates under US regulations and works with banks like BNY Mellon to ensure real backing in liquid assets. Circle publishes periodic reports with audits, which has granted it great trust for DeFi projects and companies that send cross-border payrolls.

DAI

Created by the MakerDAO protocol, it is a decentralized stablecoin that does not rely on banks or traditional regulatory entities. Its minting is done through smart contracts that maintain crypto-assets as collateral. DAI also has a mechanism called the Peg Stability Module that allows for the exchange of other stablecoins—for example, USDC—to maintain parity at 1 USD.

How the creation and burning cycle works

In the case of fiat-backed stablecoins, when a user deposits dollars with the issuer, tokens are issued and sent to their wallet. When that user decides to withdraw the funds, they return the tokens, which are then burned, ensuring that the supply reflects the actual dollars available. In the case of DAI, the process is automated: those interacting with the smart vault deposit ETH or other crypto as collateral and generate DAI; when they return the amount, the DAI tokens are burned, and the collateral is released.

This system ensures that the token is always backed by real assets—whether fiat money or crypto collateral—and is audited by independent entities, particularly in the case of stablecoins like USDC and Tether.

Use cases and competitive advantages

USDT is predominant in emerging markets like Latin America, where it is used to operate on exchanges, make remittances at reasonable values, and as an anti-inflation hedge. Its wide liquidity and availability on multiple blockchains make it ideal for those seeking speed and affordable access.

USDC, for its part, has become the reference stablecoin for the institutional and corporate world. It is used in tokenization contracts of real assets, international payments, decentralized finance, and in compliance token launches. Its accredited transparency has attracted investment funds and companies that base global payrolls on crypto.

DAI is favored in DeFi environments because it is neutral and decentralized. It is used as collateral on lending platforms, in liquidity pools, and in staking strategies. Additionally, it is preferred by DAO projects that prioritize autonomy and data sovereignty.

Risks associated with each model

Fiat-backed stablecoins are exposed to regulatory risks. For example, in 2023 Circle froze thousands of wallets due to alleged illicit activities, highlighting the degree of control and censorship that issuers can exert. Additionally, if custodial banks face crises or unforeseen legislative changes, the reserves may be compromised.

DAI, on the other hand, offers greater resistance to censorship due to its decentralized nature but is subject to the volatility of the collateral and potential failures in price oracles or bugs in smart contracts, which can temporarily destabilize its peg.

Algorithmic stablecoins, not yet mentioned here, are considered of very high risk. The example of the UST/Terra collapse exposed that when trust is lost, there is no real backing and the correction can be brutal.

What lies ahead for stablecoins

In an increasingly regulated crypto market, stablecoins like USDT and USDC are expected to reinforce their transparency and liquidity schemes. New coins, such as PayPal USD or First Digital USD, seek to establish themselves in a regulated environment, which could pressure other issuers to raise their standards.

MakerDAO, for its part, plans to migrate towards a more modular structure of sub-DAOs and diversify its collateral with real-world assets, such as tokenized bonds or accounts receivable, which could strengthen its stability and expand its adoption.

Different stablecoins, complementary missions

USDT, USDC and DAI are the three pillars of the stablecoin ecosystem in 2025, each with clear structure, advantages, and limitations. The choice between them depends on the user profile: for those seeking speed and liquidity, USDT is ideal; for companies and funds, USDC provides compliance and security; and for advocates of decentralization, DAI offers neutrality.

In a dynamic and growing market, knowing these differences is key to making secure decisions tailored to the cryptoasset environment.

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Photo by upklyak, available on Freepik