Can a cryptocurrency really promise to always be worth one dollar?

It can promise, but it can't guarantee. A stablecoin is a cryptocurrency that aims to maintain a stable value relative to a specified asset, most often the US dollar, using tools such as reserve assets or algorithms that match supply and demand. Despite the name, stablecoins are not necessarily stable: the promise is only as good as the mechanism behind it. They emerged in 2014 as a place for crypto investors to park their money between investments in highly volatile coins, and by October 2025 their total market capitalization had reached $316 billion, with $156 billion traded every day.

Most stablecoins are backed by fiat currency: the issuer holds mostly short-term assets such as treasury bonds and bank deposits, kept by a third-party custodian. That creates its own risk, because the custodian can fail. In March 2023, Circle's USDC temporarily lost its peg during a US banking crisis in which Signature Bank, Silvergate Bank and Silicon Valley Bank collapsed. Tether, whose USDT is the largest stablecoin by market capitalization, initially claimed full backing, but it was fined $41 million by the US Commodity Futures Trading Commission, which found it had enough reserves to back its coin only 27.6% of the time between 2016 and 2018.

Algorithmic stablecoins hold no reserves, or only partial ones, and rely on algorithms instead. The best-known failure is TerraUSD, meant to hold a 1:1 dollar peg by linking itself to a sister token, LUNA: if UST traded below $1, an arbitrager could buy it and redeem it for $1 worth of LUNA. That only works while there is enough demand for both tokens, which made the coin inherently fragile.

In May 2022 the peg broke. UST plunged to 10 cents, LUNA fell from an all-time high of $119.51 to virtually zero, and almost $45 billion of market capitalization disappeared in a single week.