Stablecoin Myths: 15 Beliefs That Keep People Confused

Stablecoins sit in a strange place: they are marketed as stable, traded like crypto, and increasingly discussed like payment infrastructure.

That mix creates predictable confusion, especially when people assume every stablecoin works like a bank account, every peg is unbreakable, or every on-chain transfer is a “real payment.”

Key Takeaways

Stablecoin describes an outcome (stable price), not a single product type, design choices determine risk.
Backed is not a binary: reserve quality, custody, liquidity, and legal structure drive whether backing matters under stress.
Depegs happen because convertibility confidence breaks, often tied to redemption access, liquidity, or reserve concerns.
On-chain transfer totals are not the same as payments; credible estimates separate trading/internal flows from payment-like activity.
Regulation is increasingly defining categories and obligations (for example, the EU’s MiCA framework), changing issuance, reserve governance, and disclosures.

Stablecoin Basics (So The Myths Make Sense)

What A Stablecoin Is (In Plain Terms)

A stablecoin is a token designed to maintain a stable value relative to a reference asset (most often the U.S. dollar).

The critical word is designed.

The peg does not exist by default, it is produced by a system of incentives, reserves, redemption policies, market liquidity, and (in some models) collateral management and liquidation.

The Main Types People Confuse

Reserve-backed fiat stablecoins
These typically rely on off-chain reserves such as cash, cash equivalents, and short-term government securities. The issuer sets redemption terms and operates relationships with custodians and banking partners.
Crypto-collateralized stablecoins
These typically rely on on-chain collateral posted at more than 100% of issuance value, with rules for liquidation if collateral value drops.
Algorithmic stablecoins
These rely primarily on market incentives and mechanisms rather than clearly defined reserve assets. Historically, they have been more fragile under stress, though designs vary.
Asset-referenced tokens
Depending on the jurisdiction, these can reference baskets or other assets and may face distinct regulatory treatment from “e-money” style tokens.

A Scale Anchor: Stablecoin Supply

By late December 2025, widely tracked dashboards estimate global stablecoin supply around $300B+.

In historical context, central-bank and institutional research has documented rapid growth from single-digit billions in early 2020 to roughly $190B by early May 2022, and around $200B+ by late 2024, highlighting how quickly the market can expand and reprice risk.

Stablecoin Newsletter

Myth 1: “All Stablecoins Are The Same”

Reality: Stablecoins share a label, not a uniform risk profile.

Two stablecoins can both trade near $1.00 and still differ substantially in:

reserve composition (cash vs treasuries vs other instruments),
custody structure (who holds the assets and under what legal terms),
redemption access (who can redeem at par, and how),
governance controls (mint/burn permissions, freeze features, upgrade keys),
market liquidity (depth across venues, concentration, stress behavior).

This is why institutional research consistently treats “stablecoins” as a category requiring segmentation, not a single product class.

Myth 2: “A Stablecoin Is Always Fully Backed 1:1”

Reality: “1:1 backing” is a claim about reserves relative to liabilities, but it is not the whole risk story.

Even if an issuer states that every token is backed 1:1, practical outcomes depend on:

what the reserves are (and their liquidity under stress),
where they are held (custody/banking concentration),
how and when reserves are reported (timeliness and scope),
who has the right to redeem and under what constraints.

A stablecoin can be “fully backed” in an accounting sense and still experience market stress if holders fear redemption delays, reserve access issues, or liquidity mismatch.

Myth 3: “If It’s Pegged To $1, It Can’t Depeg”

Reality: Pegs can break temporarily or persistently.

A well-known example: during the March 2023 U.S. banking stress involving Silicon Valley Bank, USDC traded below $1 after its issuer disclosed that $3.3B of USDC’s cash reserves were held at SVB.
The peg recovered as the situation clarified and backstops were announced.

This episode matters because it shows how even a large stablecoin can be sensitive to:

reserve location and counterparty concentration,
disclosure timing,
perceived convertibility at par during stress.

Myth 4: “Stablecoin = Bank Deposit”

Reality: A bank deposit is a regulated bank liability; a stablecoin is typically an issuer liability (or protocol mechanism) with different protections and claims.

Stablecoins commonly rely on the banking system for:

custody and safekeeping of reserve assets,
fiat cash management,
on/off-ramps.

Even when stablecoins are used for “payments,” many of the hard constraints remain traditional: banking hours, settlement cutoffs, compliance obligations, and jurisdictional rules.

Myth 5: “Audited = Risk-Free”

Reality: Verification improves transparency; it does not remove risk.

Key distinctions that often get blurred:

Audit vs attestation: different scopes, standards, and assurance levels.
Point-in-time vs continuous: many reports confirm reserves on a specific date, not every day.
Scope limitations: a report can confirm asset existence without confirming liquidity under stress, legal segregation, or operational readiness for redemptions.

A stablecoin can publish regular reports and still face risk from market structure, concentration, and rapid shifts in redemption demand.

Myth 6: “Reserves Are Always Just Cash”

Reality: Reserves often include cash equivalents and short-term government securities.

This matters because instruments behave differently under stress:

cash is immediately liquid,
short-term treasuries are typically liquid but may require settlement and operational steps,
other money-market instruments can have different liquidity and haircut behavior.

If reserves are not “cash-like enough” for a given stress scenario, secondary-market price stability can suffer even if the issuer’s balance sheet is technically solvent.

Myth 7: “Redemption Is Instant For Everyone”

Reality: Direct redemption often depends on eligibility and operations.

Redemption may be limited by:

KYC/eligibility requirements,
minimum redemption sizes,
fees,
banking hours and settlement windows,
onboarding constraints for direct issuer relationships.

So the real question becomes: If you need to exit quickly at scale, are you a direct redeemer, or are you relying on secondary markets?

Those are not the same thing during volatility.

Myth 8: “Stablecoin Transfers Are Always Cheaper Than Cards/PayPal”

Reality: The right comparison is total cost of completion, not gas fees alone.

Costs can include:

on-ramp/off-ramp spreads and service fees,
compliance operations and monitoring,
handling exceptions (wrong network, wrong address, stuck transfers),
support workload (chargebacks vs irreversible errors),
treasury operations (reconciliation, approvals, access control tooling),
FX costs and payout rail costs where fiat conversion is needed.

In some corridors, stablecoins can reduce costs and speed up settlement. In other cases, the operational burden can outweigh network-fee savings.

Latest Stablecoin News

Myth 9: “Fees Are The Same On Every Chain”

Reality: Network fees vary by design, congestion, and user behavior.

Fee outcomes depend on:

chain congestion and blockspace demand,
wallet defaults and fee estimation quality,
whether transfers can be batched,
whether the transaction touches smart contracts (often higher cost than simple transfers),
the difference between L1 and L2 fee dynamics.

Stablecoin price stability does not imply “stable fees.”

Myth 10: “Stablecoins Are Anonymous”

Reality: Most stablecoin activity occurs on public blockchains where transfers are traceable.

Privacy depends on:

the chain and tooling used,
whether addresses are linked to identities through ramps,
compliance monitoring by exchanges, custodians, and other regulated entities.

In regulated contexts, stablecoin usage typically sits inside KYC/AML expectations at on/off-ramps and often within issuer policy controls.

Myth 11: “If It’s On A Blockchain, It’s Automatically Final”

Reality: Finality differs by network, and business finality is more than chain confirmation.

Practical finality depends on:

the chain’s confirmation/finality properties,
custody controls and operational workflows,
the fact that many errors (wrong address/network) are not reversible.

Traditional rails can reverse some transactions; stablecoin transfers often cannot. “Final” can mean “irrecoverable,” not simply “settled.”

Myth 12: “Stablecoins Don’t Need Regulation”

Reality: Stablecoins interact with payments, consumer protection, AML/KYC, and systemic-risk concerns.

As stablecoins scale, regulators predictably respond with:

reserve governance requirements,
disclosure obligations,
issuer licensing expectations,
limits or rules for certain categories.

For example, in the EU, MiCA sets a unified framework and distinguishes categories such as e-money tokens and asset-referenced tokens, with specific implementation timelines beginning in 2024.

Myth 13: “Regulation Will Kill Stablecoins”

Reality: Regulation typically reshapes markets rather than eliminating them.

It can:

constrain fragile designs,
raise compliance costs,
reduce distribution for non-compliant issuers,
simultaneously increase institutional adoption for clearer, governed models.

A concrete adoption signal: major payment networks have publicly reported stablecoin settlement activity and ongoing integrations, indicating that large incumbents are operationalizing stablecoins for specific settlement use cases rather than treating them purely as speculative assets.

Myth 14: “Stablecoins Replace Banks”

Reality: Stablecoins can change settlement workflows, but most systems still depend on banks and custodians.

Stablecoin issuance and redemption often require:

reserve asset custody,
banking relationships,
fiat rails for entry/exit,
compliance infrastructure.

In other words, stablecoins can rewire parts of settlement and treasury operations, but they usually do not remove the need for the legacy financial system, especially at scale.

Myth 15: “Stablecoins Are Only For Crypto Traders”

Reality: Trading is a major use, but payment-linked activity exists, and credible sources are careful about how they measure it.

Here’s the essential measurement lesson:

Some widely cited “stablecoin settlement” figures include trading, internal treasury movements, and automated transfers.
More conservative approaches estimate a smaller payments component by filtering out exchange-dominated and automated flows and looking for merchant/payment patterns.

For example, credible public reporting has cited:

very large stablecoin settlement totals (in the multi-trillion range annually),
with a smaller subset attributed to payments,
and independent analysis suggesting that a minority of raw transfers map cleanly to real-world purchases.

Another useful reality check from global payments research: crypto-assets (including stablecoins) have represented a very small share of total global e-commerce transaction value in recent years (on the order of fractions of a percent), reinforcing that stablecoins are not yet a mainstream consumer checkout method globally, even if they are meaningful in certain corridors and B2B flows.

What The Volume Numbers Actually Mean (And Why People Argue About Them)

Stablecoin “volume” can refer to:

raw on-chain transfer value,
exchange-related flows,
internal treasury movement,
smart-contract automation (bots, liquidity operations),
“adjusted” volume that attempts to remove automated/internal patterns.

Institutional reports have explicitly highlighted this measurement problem. For example, some market research has cited adjusted stablecoin transaction volume estimates of $7.6T (2023) rising to $18.4T (2024), describing the latter as roughly +140% year-over-year.

Those adjusted series are specifically presented as attempts to get closer to economically meaningful activity by filtering certain automated behaviors.

The key point is not which number is true. The point is: you cannot interpret stablecoin adoption from a single headline volume figure unless you know the methodology.

How To Evaluate A Stablecoin With Less Guesswork

Reserve Quality And Liquidity

What instruments back the token?
How quickly can reserves be converted to cash under stress without material loss?

Transparency Cadence

How often are reserves reported?
Are reports detailed about instrument types, maturities, and custody?

Redemption Terms

Who can redeem directly?
What are the operational constraints (minimums, fees, cutoffs, banking hours)?

Concentration Risk

Are reserves concentrated with specific banks/custodians?
Is the issuer operationally dependent on a small set of critical partners?

Technical And Operational Controls

Is the token upgradeable?
Are there administrative controls (freeze, blacklist) and are they documented?
What is the incident history and response maturity?

Regulatory Fit (Especially For Businesses)

What category does the stablecoin fall under in relevant jurisdictions?
Do your ramps and counterparties support compliant movement and reporting?

Conclusion

Stablecoins are neither “risk-free dollars” nor inherently unsafe.

They are instruments and networks with specific design choices, reserve composition, redemption structure, governance, operational dependencies, that determine how they behave in normal markets and during stress.

If you want clarity, focus on failure modes:

What happens if many holders want out at once?
Who can redeem, and how fast?
What are reserves, where are they held, and how transparent are they?
What operational errors can occur, and how costly are they to resolve?

“Stable” is an outcome produced by a system. Understanding the system is the difference between confidence and confusion.

Work With Us

Read Next:

FAQs:

1. What Causes A Stablecoin To Depeg?

Depegs typically happen when confidence in convertibility at par weakens—due to reserve concerns, redemption constraints, or liquidity stress—so sellers accept less than $1 in secondary markets.

2. Are Stablecoins Insured Like Bank Deposits?

Generally, no. Stablecoins are usually not insured deposits. Protections depend on jurisdiction, issuer structure, and the specific regulatory regime.

3. Why Do Stablecoin Volume Numbers Differ So Much?

Because “volume” may include trading flows, internal transfers, and automated activity. “Adjusted” methodologies try to filter these out and can produce materially different totals.

4. Are Stablecoins Mostly For Payments Or Mostly For Trading?

Trading-related usage is significant. Payment-linked activity exists, but credible measurement often shows it is smaller than raw transfer totals, and it depends heavily on methodology.

5. What Is The Simplest Way To Assess Stablecoin Risk?

Start with reserve quality and liquidity, transparency cadence, redemption terms, concentration risk (banks/custodians), operational controls, and regulatory fit for your jurisdiction and use case.

6. How Has Regulation Changed Stablecoins In The EU?

The EU’s MiCA framework creates a unified approach and distinguishes categories such as e-money tokens and asset-referenced tokens, with requirements that affect issuance, reserves, governance, and disclosures.

Disclaimer:
This content is provided for informational and educational purposes only and does not constitute financial, investment, legal, or tax advice; no material herein should be interpreted as a recommendation, endorsement, or solicitation to buy or sell any financial instrument, and readers should conduct their own independent research or consult a qualified professional.