Introduction: The Dual Nature of Stablecoin Risks and Opportunities
Stablecoins (Stablecoin) are often regarded as the "safe haven" of the crypto market, designed to shield investors from the extreme volatility of cryptocurrencies. However, the market is flooded with low-liquidity or even failed stablecoins, gradually making investors realize that not all stablecoins are equally secure. This article delves into why many stablecoins fail and how investors can make informed choices to safeguard their capital.
Which Stablecoins Have Already Failed?
According to CoinMarketCap data, as of June 17, 2025, there are 233 stablecoins with a total market capitalization exceeding $250 billion. Among them, USDT and USDC are the two largest stablecoins, accounting for over 85% of the total market share ($210 billion). The remaining stablecoins collectively make up only 15% of the market.
Market Cap Breakdown:
- $10–100 billion: 4 stablecoins
- $1–10 billion: 15 stablecoins
- Below $1 billion: The rest (many lack price, market cap, or trading volume data, indicating they may have failed or are illiquid).
👉 Explore top stablecoins by market cap
Why Do Many Stablecoins Fail? 5 Key Reasons
- Algorithmic Design Flaws
Algorithmic stablecoins rely on mechanisms rather than tangible assets. Loss of market confidence can trigger a collapse (e.g., TerraUSD/UST). - Insufficient Reserves
Claims of "1:1 dollar backing" often mask exposure to risky assets like commercial paper or corporate bonds, leading to bank runs (e.g., USDN). - Regulatory Crackdowns
Regulatory actions can halt operations (e.g., Libra’s abandonment, BUSD’s SEC lawsuit). - Hacks and Smart Contract Vulnerabilities
DeFi stablecoins are prone to exploits (e.g., Beanstalk Farms’ $180M flash loan attack). - Rug Pulls or Bankruptcy
Small or anonymous issuers may disappear, rendering tokens worthless (e.g., BEAR coin).
How to Evaluate Stablecoin Safety?
| Assessment Criteria | Low Risk | Medium Risk | High Risk | Verification Method |
|---|---|---|---|---|
| Reserves | Cash + Short-term Treasuries | Mixed (commercial paper, corporate bonds) | No reserves / Algorithmic | Audit reports |
| Issuer Reputation | Regulated, transparent | Partial compliance | Anonymous / Unregulated | Regulatory filings |
| Stability Mechanism | Fully collateralized | Partial collateral + algorithms | Pure algorithmic | Whitepaper review |
| Audit Transparency | Monthly (Big 4 audits) | Irregular / Incomplete | None | Official "Transparency" pages |
| Regulatory Compliance | US/EU compliant | Limited compliance | Non-compliant / Litigation | SEC/FCA updates |
👉 Learn how to spot risky stablecoins
Which Stablecoins Can Investors Trust?
| Stablecoin | Pros | Cons |
|---|---|---|
| USDT | High liquidity, widely adopted | Transparency concerns |
| USDC | Fully audited, transparent | Lower adoption vs. USDT |
| DAI | Decentralized, ETH-backed | Volatility-sensitive |
| TUSD | Real-time reserve verification | Small market share |
Conclusion
While stablecoins offer relative safety, risks like reserve inadequacies, algorithmic failures, and regulatory hurdles persist. Investors should prioritize transparency, compliance, and liquidity, diversifying across multiple stablecoins to mitigate risks.
FAQ
Q: Can stablecoins lose their peg permanently?
A: Yes, if underlying mechanisms fail (e.g., UST’s collapse).
Q: Are algorithmic stablecoins riskier?
A: Generally, yes—they lack tangible collateral and rely on market confidence.
Q: How often should I check a stablecoin’s reserves?
A: Monitor monthly audit reports for actively traded stablecoins.