crypto
Stablecoin
A stablecoin is a cryptocurrency designed to hold a fixed value, usually $1, by being backed with reserves (cash, T-bills) or algorithmic mechanisms. They function as the cash leg of crypto markets.
Reserve-backed stablecoins (USDT, USDC) dominate; their reliability depends entirely on the quality and auditability of the reserves. Algorithmic designs that maintain pegs without full reserves have a history of catastrophic failure — Terra/UST's 2022 collapse erased tens of billions.
For tax purposes most jurisdictions treat swapping crypto into a stablecoin as a disposal — it crystallises a gain or loss just like selling to dollars.
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Related terms
- Cost Basis (Crypto)
- Cost basis is what you paid to acquire a crypto asset, including fees. Capital gains tax is owed on the difference between sale proceeds and cost basis, so accurate records of every purchase are essential.
- Self-Custody
- Self-custody means holding your own cryptocurrency private keys rather than leaving coins on an exchange. You gain immunity from exchange failures, at the cost of being solely responsible for security and backups.
Frequently asked questions
What is Stablecoin?
A stablecoin is a cryptocurrency designed to hold a fixed value, usually $1, by being backed with reserves (cash, T-bills) or algorithmic mechanisms. They function as the cash leg of crypto markets.