How a stablecoin works
A stablecoin holds a 1-to-1 peg to a reference asset, almost always the US dollar. The peg is kept by one of three mechanisms: full fiat reserves (cash and short-term treasuries), crypto over-collateralisation, or an algorithm that expands and contracts supply. Reserve-backed coins like USDC and USDT dominate because the model is simple to audit and has held up under stress that broke algorithmic designs.
Worked example
You sell a volatile altcoin into USDC at $1.00 per token. Your dollar value is now parked without leaving the crypto ecosystem, no bank transfer, no settlement delay. When you want exposure again, you swap USDC back into the asset. The stablecoin acted as cash between trades, which is its primary job for active traders.
Stablecoins on Volity
Volity accepts USDT and USDC deposits on the major chains, and they clear in minutes with zero deposit fees. Stablecoins are the fastest funding route into a Markets account and the natural settlement currency for crypto CFDs. They also let you hold dry powder on-platform between setups without converting back to fiat.
Why it matters
A stablecoin is only as stable as its backing. Reserve quality, redemption rights, and the issuer’s transparency are the real questions, not the peg itself, which holds until it does not. Prefer coins with regular attestations and clear redemption. Related reading: DeFi, where stablecoins are the base unit of account.
Read the full breakdown in our crypto trading guide.
