A stablecoin is a token designed to hold a constant value against a reference, usually the US dollar. The word "stable" describes the intention. Whether it is achieved depends entirely on the mechanism, and the mechanisms differ enormously.
| Design | Holds its peg because | Fails when |
|---|---|---|
| Fiat-backed | Reserves of cash and short-term instruments are held against each token | Reserves are not what was claimed, or redemption is restricted |
| Overcollateralised crypto-backed | More than $1 of volatile collateral is locked per $1 issued | Collateral falls faster than liquidations can occur |
| Algorithmic | An arbitrage mechanism is supposed to restore the peg | Confidence goes — the mechanism relies on demand that disappears exactly when it is needed |
For fiat-backed designs the question is entirely about the reserves: what is actually held, who verifies it, how often, and whether redemption is genuinely available at par to ordinary holders. An attestation is not an audit. Reserves of commercial paper are not equivalent to reserves of treasury bills.
Stablecoin supply matters beyond the tokens themselves. VILIQ tracks aggregate stablecoin supply as a macro factor because it approximates capital staged for deployment into digital assets — growing supply suggests capital arriving, contracting supply suggests it leaving.
Common belief
"A stablecoin is the same as a dollar."
What is actually true
A dollar in a bank is a deposit with regulatory protections. A stablecoin is a claim on an issuer, whose value depends on reserves you cannot inspect directly and redemption terms that may not apply to you. They usually trade at parity, and usually is doing a lot of work in that sentence.