Types of Stablecoins

Explore fiat-backed, crypto-backed, synthetic delta-neutral, and algorithmic stablecoins, including the lessons from the Terra/UST collapse.

11 min · intermediate · part of Stablecoins & Pegged Assets

Four Approaches to Stability

Stablecoins are not all built the same way. The mechanism a stablecoin uses to maintain its peg determines its risk profile, its capital efficiency, and its trustworthiness. There are now four meaningful categories in 2026: 1. **Fiat-backed stablecoins** — backed 1:1 by cash and short-duration U.S. Treasuries (USDT, USDC, FDUSD, PYUSD). 2. **Crypto-backed stablecoins** — over-collateralized by crypto assets locked in smart contracts (USDS/DAI, GHO, crvUSD). 3. **Synthetic / delta-neutral stablecoins** — maintain peg by hedging long crypto positions with short perpetual futures (USDe). 4. **Algorithmic stablecoins** — relied on supply-and-demand math with little or no collateral (the failed UST is the canonical example; modern variants exist but in much dampened, more conservative forms). Each category trades off three things: **decentralization**, **capital efficiency**, and **stability under stress**. No design optimizes all three.

Also in this lesson

Fiat-Backed Stablecoins
Crypto-Backed Stablecoins
Synthetic / Delta-Neutral Stablecoins
Algorithmic Stablecoins and the UST Collapse
Comparing the Four Types
For Deeper Reading

Key terms

Fiat-backed stablecoin: A stablecoin backed 1:1 by cash and short-duration Treasuries held in reserve. Examples: USDT, USDC, FDUSD, PYUSD.
Over-collateralization: Locking more crypto as collateral than the value of stablecoins minted. USDS typically requires 150%+ collateralization.
Sky Protocol: The August 2024 rebrand of MakerDAO. Issues USDS (1:1 with DAI) and the SKY governance token (1 MKR = 24,000 SKY). Migration finalized April 7, 2026.
GHO: Aave’s native crypto-backed stablecoin, launched July 15, 2023. Around $500M+ supply by early 2026 across Ethereum, Arbitrum, Base, and Avalanche.
crvUSD: Curve’s stablecoin, deployed May 17, 2023, using LLAMMA for continuous soft liquidations rather than hard liquidation thresholds.
LLAMMA: Lending-Liquidating Automated Market Maker Algorithm. Curve’s mechanism that gradually converts collateral as prices fall, smoothing out liquidations.
Delta-neutral stablecoin: A stablecoin (like Ethena’s USDe) that holds equal long and short positions in the same asset, so the dollar value of collateral stays constant regardless of price moves.
USDe: Ethena’s synthetic delta-neutral dollar, launched February 2024. Peaked near $14.6B late 2025 — the fastest stablecoin to $10B in history (~500 days).
Funding rate: The periodic payment between long and short positions in perpetual futures, typically positive in bull markets. Funding rate income is a major part of USDe’s yield.
Death spiral: A self-reinforcing collapse: peg breaks, absorber token sells off, peg gets harder to defend, more selling, and so on. UST/LUNA went from $40B+ to near zero in days in May 2022.
Do Kwon: Co-founder of Terraform Labs, the company behind UST/LUNA. Arrested in Montenegro March 2023, extradited to the U.S. December 31, 2024, sentenced to 15 years in prison.
PYUSD: PayPal USD, launched August 7, 2023 on Ethereum, expanded to Solana May 2024. By early 2026 the Solana version ($377M) has surpassed the Ethereum version ($356M).

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Educational only — not financial advice.