Tokens & Assets
Stablecoin
Token targeting a reference value through backing and incentives
Definition
A stablecoin targets a reference value, usually one US dollar, through reserves, collateral and/or market incentives. A peg is a design objective, not a guarantee. DAI belongs to the Maker system rebranded as Sky: its backing includes USDC exposure and real-world assets, and governance controls parameters, so calling it simply decentralized hides material dependencies.
Example
Holding 1,000 dollar-targeting tokens at $0.97 gives a market value of $970, not $1,000. Redemption at par only restores that value if you can actually access it and the backing is available.
How it works
Issuance expands supply against reserves or collateral; redemption and arbitrage can contract it when the market price falls. The useful question is who can redeem, into what asset, under which limits.
Risks to Consider
- Reserve impairment or issuer freezes can block redemption
- Liquidation failure can leave collateral-backed issuance underfunded
- Confidence-driven selling can overwhelm peg liquidity
Common Questions
Is a stablecoin the same as its peg?
No. The stablecoin is the token and backing system; the peg is its target exchange rate. A dollar target says nothing by itself about redemption rights or decentralization.
