Can you really trust stablecoins?

Welcome to the cryptohunt jam where we spend one minute a day to explain crypto. In plain english.

Today, let’s take another look at stablecoins – and why you shouldn’t trust all of them with your money.

Remember the concept of stable coins: One coin is always worth the equivalent of one real currency. So, for example, 1 stablecoin would be worth $1.

This is achieved by something called collateral. It’s very similar to getting a mortgage - your house is the collateral. The bank knows that if you can’t pay your debt, they can always take the house.

When you buy a stable coin from the creator, they take your money and put that aside as collateral. In the best case, it just sits in a savings account and whenever you want to exchange it back, the whole exchange happens in reverse.

The problem is that many stable coins don’t actually put your dollar into savings. Some of them invest your money in other crypto currencies, some of them only save part of the money and pay themselves with the rest. All this becomes a problem as soon as more people want to exchange their stable coins back than there is collateral left to pay them.

Two great examples are Tether, which we covered last time, and USDC. Tether, on one hand, is intransparent about what your money actually gets invested in. USDC, on the other hand, has 100% of the money parked in Dollars in an account, is government licensed in the US, and gets audited every month.

And that’s why you can’t trust every stable coin. Some are audited and 100% collateralized, and some are not. Always do your research before you assume that your money is safe.

Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.