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Crypto and DeFi · Altcoins and Narratives

Stablecoin mechanics: USDT, USDC, and DAI

Explain how stablecoins hold their peg and how the three main types differ.

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Crypto and DeFi

Altcoins and Narratives

Lesson 23 of 7929%
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Lesson 23 of 79Crypto and DeFiAltcoins and Narratives

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Explain how stablecoins hold their peg and how the three main types differ.

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The dollar inside crypto

Most crypto trading does not actually use dollars. It uses stablecoins. A stablecoin is a token designed to stay worth roughly one US dollar, so that traders can park value between trades without leaving the crypto rails. When you sell ETH on an exchange and don't want to cash out to your bank, you usually receive USDT or USDC. Those are stablecoins. They are the closest thing crypto has to a working money-market account inside the system.

Wick checks a calculator showing 130 to 150 percent because locking $150 of ETH lets you borrow $100 of DAI, showing how over-collateral backs the DAI peg.Lock $150 of ETH,borrow $100 DAI130-150%
Wick saysTo make DAI, people lock more crypto than they borrow, usually 130 to 150 percent.

There are three big families. USDT (Tether) is the largest by volume — most exchange pairs around the world are quoted against it. Tether claims to hold dollars, short-term US Treasuries, and other paper to back each token. USDC (Circle) is smaller but is generally regarded as the more transparent fiat-backed option, with monthly attestations of its reserves. Both USDT and USDC are issued by companies. If those companies fail, freeze accounts, or come under regulatory pressure, their tokens are at risk. That is the trade-off.

Wick reads a headline that the algorithmic stablecoin UST broke its peg as a practice chart falls, showing a peg without collateral is fragile.MARKET NEWSAlgo stablecoinUST breaks itspegPractice chart?
Wick saysTerra UST had no real backing and collapsed in May 2022, so a peg needs real support.

DAI works differently. DAI is issued by MakerDAO, a smart-contract system on Ethereum. To create DAI, someone locks crypto — typically ETH or other approved assets — into a vault as collateral, then borrows DAI against it. The collateral is always worth more than the DAI borrowed against it (usually 130-150 percent). If the collateral value drops too low, the vault is automatically liquidated to maintain the peg. The system is over-collateralized by design. The benefit is that DAI does not rely on a single company holding bank deposits. The cost is that it relies on the smart contracts and on the collateral assets behaving normally.

Wick compares a green card saying split stablecoins across issuers with a coral card saying keep it all with one issuer, showing a simple way to limit issuer risk.Do thisSplit stablecoinsacross issuersNot thisKeep it all withone issuer
Wick saysSpreading stablecoins across more than one issuer is a common safety habit.

What about coins that tried to hold a peg with no real backing at all? Those are called algorithmic stablecoins. The most famous case, Terra UST, collapsed in May 2022, wiping out roughly $40 billion in days. The lesson stuck — peg without collateral is fragile. As a trader, the practical takeaway is this. Stablecoins are not all equal. Their peg holds because of plumbing you should know about, not because the price says 1.00 on a chart.

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1. What is the main difference between DAI and USDC?

2. Why do most experienced traders avoid keeping all their stablecoin balance in one issuer?

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