Trading term

What is Stablecoin?

A stablecoin is a cryptocurrency designed to hold a fixed value, almost always one US dollar, so that traders can hold and move dollars on a blockchain without leaving it. Tether (USDT) and USD Coin (USDC) are the two largest; most crypto trading pairs on offshore exchanges are quoted in one of them rather than in actual dollars.

A stablecoin is a token whose issuer promises to redeem it for a dollar. The issuer holds reserves — cash, Treasury bills, sometimes other assets — against the tokens in circulation, and the market price of the token stays near $1 as long as traders believe the redemption promise. It does not always stay exactly there. A stablecoin trades on exchanges like any other asset, and its price moves a few basis points with demand: above par when traders are rushing to buy crypto with it, below par when they are rushing out. Occasionally it moves a lot more. Tether traded as low as $0.92 on 15 October 2018 when its reserves were doubted; USDC fell below $0.90 on 11 March 2023 when $3.3bn of its reserves were stuck at Silicon Valley Bank; TerraUSD, an 'algorithmic' stablecoin backed by nothing but another token, went to zero in May 2022.

The consequence for anyone reading prices is that a USDT-quoted price is not a dollar price. Bitcoin at 76,400 USDT with Tether at $0.9992 is bitcoin at $76,339. Most of the time the difference is a few basis points and can be ignored; on the days it cannot, every cross-venue comparison — the Coinbase premium, the basis, a funding rate read against a dollar venue — is wrong by the size of the depeg.

For example

You hold 10,000 USDT on an exchange. On an ordinary day it is worth $9,995 to $10,004 depending on where Tether is trading. On 15 October 2018 it was briefly worth about $9,200 on the venues where Tether could be sold for dollars, while on the same exchanges bitcoin priced in USDT jumped 5-10%: the coin had not moved, the unit it was priced in had.

Go hands-on in Premium

That's Stablecoin in theory — it clicks when you read it on a live chart. Practise it hands-on in the TradeWize Premium Futures & Derivatives track.

Explore Premium →

Why it matters to you

Stablecoins are the dollars of crypto: the unit most pairs are quoted in, the collateral behind most perpetual positions, and the asset traders park in between trades. Their peg is the assumption underneath nearly every price on an offshore exchange. When it holds, it is invisible; when it slips, it shows up as a phantom move in everything priced in it.

⚠ Treating a stablecoin price as a dollar price

A dashboard that compares a USD venue with a USDT venue is comparing two different units. On the days a stablecoin trades a few basis points from par — most days — the comparison carries a small bias; on the days it depegs, the comparison is nonsense. Look up the stablecoin's own dollar price before reading any gap between venues.

Frequently asked questions

What is a stablecoin?

A cryptocurrency token that its issuer promises to redeem for a fixed amount of a currency, almost always one US dollar, and that holds reserves to back that promise. Tether (USDT) and USD Coin (USDC) are the largest. They let traders hold and move dollars on a blockchain and are the quote currency for most crypto trading pairs.

Are stablecoins always worth exactly one dollar?

No. They trade on exchanges and their price moves with demand, usually by a few basis points either side of $1. On rare days they move much more: Tether to about $0.92 in October 2018, USDC below $0.90 in March 2023, and TerraUSD to zero in May 2022. Coinbase and Kraken run USDT-USD markets that give a direct dollar price.

Why does it matter that Binance quotes bitcoin in USDT?

Because a price in USDT is a price in Tether, not in dollars. If Tether is at $0.9995, every Binance price is 5 basis points higher in USDT than it would be in dollars, and any comparison with a dollar venue — the Coinbase premium, for instance — inherits that gap. Adjust for the stablecoin's price before comparing.

Read the full guide

DerivativesHow to Read the Coinbase PremiumThe Coinbase premium is bitcoin's price on Coinbase minus its price on Binance, read as a gauge of US buying. Nine years of hourly data say the gap has closed from ±500 basis points to a handful, that most of what remains is Tether's dollar price, that it looks the same in New York hours as in Asian hours, and that it records the month that just happened rather than the one to come.11 min read

Related terms

BackwardationBackwardation is when futures prices are lower for later delivery dates — the futures curve slopes downward. It often signals tight near-term supply or strong demand for immediate delivery. For futures holders it creates a positive 'roll yield,' as they sell pricier near-term contracts and buy cheaper later ones.BasisBasis is the difference between an asset's futures price and its current spot (cash) price. It reflects carrying costs, supply and demand, and time to expiry — and it converges to zero as the contract nears expiration, since a future about to settle must match the spot price. Traders watch basis to gauge conditions and to hedge.Borrow feeThe borrow fee is what a short seller pays to rent the shares they've borrowed, quoted as an annual rate on the value of the position and charged for every day the short is held. An easy-to-borrow stock might cost a fraction of a percent a year; a hard-to-borrow one can cost many times that.Cash-and-carryA cash-and-carry is a trade that buys an asset and sells a dated futures contract on it at the same time, then holds both to expiry. The two legs close at the same price on settlement day, so the trader keeps the gap between the futures price and the spot price — the basis — as a return that is known on the day the trade is put on.
← Back to the full glossary