Deciphr Academy
Track 5 · Money and banking · Module 22

Stablecoins

Dollar tokens: what backs them, how they break, and the new rules.

Lessons
7
Reading
55 min
Quiz
15 questions
Pass mark
80%
  1. 1What a stablecoin isWhat is a stablecoin, and why do people use them?6 min
  2. 2Fiat-backed stablecoinsWhat backs a fiat-backed stablecoin like USDC or USDT?8 min
  3. 3Crypto-backed stablecoinsHow does a crypto-backed stablecoin like DAI stay near one dollar?8 min
  4. 4Algorithmic stablecoins and TerraUSDWhat is an algorithmic stablecoin, and why did TerraUSD collapse?8 min
  5. 5Depegs and runsWhat is a stablecoin depeg, and what happened to USDC in March 2023?8 min
  6. 6The new rulesWhat do the new stablecoin laws in the US and the EU require?9 min
  7. 7A company's stablecoin checklistWhat can a company check before it holds or pays with a stablecoin?8 min

The case used in this module

Each module tells its own made-up Brindlecove story, so details can differ from one module to the next.

Key words

Stablecoin
A crypto-asset that aims to keep a stable value against a set asset, such as the US dollar, or a basket of assets.12
Peg
The fixed value a stablecoin aims to keep, such as one US dollar per token.34
Reserves
The assets an issuer holds to back the stablecoins it has issued, such as cash and short-term Treasury bills.56
Redemption
Handing stablecoins back to the issuer in exchange for dollars or other assets. The issuer then destroys (burns) the tokens.37
Mint and burn
Minting creates new tokens when someone pays in; burning destroys tokens when they are redeemed.38
Attestation
An accountant's check of one claim, such as 'reserves are at least equal to the tokens', at a set date.69
Audit
An independent check of a company's full financial statements for a period, such as a year.1011
Over-collateralised
Backed by collateral worth more than the stablecoins issued, as a buffer against falling prices.38
Liquidation ratio
The collateral-to-debt ratio below which a vault can be liquidated.12
Liquidation
Selling a vault's collateral, usually by auction, to repay its stablecoin debt and a penalty.1213
Algorithmic stablecoin
A stablecoin that holds few or no reserve assets and tries to keep its peg with rules that change its supply.3
Depeg
When a stablecoin's market price moves away from its peg, for example a dollar stablecoin trading at 90 cents.814
Run
A self-reinforcing wave of redemptions and forced sales of reserve assets.2
Payment stablecoin
The GENIUS Act's term for a digital asset used for payment, whose issuer must redeem it for a fixed amount of money.5
E-money token (EMT)
Under EU law, a crypto-asset that aims to keep a stable value by referencing one official currency.15
Asset-referenced token (ART)
Under EU law, a crypto-asset that aims to keep a stable value by referencing another value, right or mix of them, and is not an e-money token.15
Sources
  1. High-level Recommendations for the Regulation, Supervision and Oversight of Global Stablecoin Arrangements: Final report. Financial Stability Board, 17 July 2023.
  2. Report on Stablecoins. President's Working Group on Financial Markets, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, November 2021.
  3. The stable in stablecoins (FEDS Notes). Board of Governors of the Federal Reserve System (Garth Baughman, Francesca Carapella, Jacob Gerszten and David Mills), 16 December 2022.
  4. Crypto-Enabled Fraudster Sentenced For Orchestrating $40 Billion Fraud. US Attorney's Office, Southern District of New York, US Department of Justice, 11 December 2025.
  5. Public Law 119-27: Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). US Congress, via the US Government Publishing Office, 18 July 2025.
  6. Independent Accountants' Report and USDC Reserve Report (report dates 11 and 31 August 2026). Circle Internet Group, with an examination report by its independent accountants.
  7. Industry Letter: Guidance on the Issuance of U.S. Dollar-Backed Stablecoins. New York State Department of Financial Services, 8 June 2022.
  8. Primary and Secondary Markets for Stablecoins (FEDS Notes). Board of Governors of the Federal Reserve System (Cy Watsky and others), 23 February 2024.
  9. Assurance report according to ISAE 3000R, and Financial Figures and Reserves Report as of 30 June 2026 (Tether International, S.A. de C.V.). BDO Advisory Services and Tether International, 31 July 2026.
  10. AS 1001: Responsibilities and Functions of the Independent Auditor. Public Company Accounting Oversight Board (read via the Internet Archive copy of 16 December 2024, because pcaobus.org refused our automated download).
  11. Tether Completes the Largest Inaugural Financial Audit in History. Tether press release, 13 August 2026.
  12. The Maker Protocol White Paper. MakerDAO, now Sky (white paper first published February 2020; read 22 October 2026).
  13. Collateral Liquidation. Sky Protocol developer documentation, read 22 October 2026.
  14. Annual Economic Report 2025, Chapter III: The next-generation monetary and financial system. Bank for International Settlements, 29 June 2025.
  15. Regulation (EU) 2023/1114 on markets in crypto-assets (MiCA). European Parliament and Council of the European Union, Official Journal of the European Union (EUR-Lex), 31 May 2023.