Daily Current Affairs for UPSC : 8 Oct 2025/ What are Stablecoins ?

Stablecoins: The New Infrastructure of Global Finance

What Are Stablecoins?
Stablecoins are a subset of crypto-assets that are designed to provide an approximately stable value to a single asset or basket of assets providing apparent price stability. In this context many different definitions exist depending on the:

• National governments:
  • Standard-Setting bodies (e.g. FSB, BIS, IMF)
  • Central banks around the world

In essence, stablecoins are a blockchain-enabled digital asset that is backed by reserves such as fiat currencies, commodities or crypto-assets in order to obtain a sustained value over time. Stablecoins comprise an independent category of Virtual Digital Assets (VDAs).

Types of Stablecoins:
Broadly, there are three types of stablecoins:

1. Fiat-Backed Stablecoins:
   • The reserve assets are fiat currencies like U.S. Dollar (USD) or Euro (EUR)
   • Either held at banks or regulated institutions
   • Examples include USDT (Tether) or USDC (USD Coin)
2. 2. Crypto-Backed Stablecoins:
   Are collateralised with other crypto-assets
   • Stability is provided through over-collateralisation
   • An example is DAI which is backed by Ethereum
3. Algorithmic stablecoins:
   • Are not explicitly based on reserves
   • Includes the automated adjustment of supply and or demand through algorithms
   • More experimental and prone to risk
   • An example is TerraUSD (UST) which collapsed in 2022