Are "Stablecoins" Really Stable?

[BitGoba]

Why are "stablecoins" called stable when they are pegged to fiat currencies like the dollar?We know that the dollar isn’t truly stable ,it loses about 7 to 10% of its value annually due to inflation. More and more, we notice that with the same amount of dollars, we can buy less and less. For example, if you had $10,000 in 2020, nominally you still have $10,000 today, but its purchasing power is only about $6,800.Maybe they are considered “stable” only in terms of losing less purchasing power

Why are they called “stable” when they are actually unstable?

[Charles-Tim]

Stable coins are more than those pegged with fiat.

Aside USDT, USDC, DAI and others fiat begged stable coins, stable coins can be pegged with any other thing. Example is wBTC that is pegged with bitcoin price. Another example is PAXG and XAUt that is pegged with gold and so on. They are stable coins because they have the same price or almost the same price with the coins they are pegged with. As the asset go up, they go up and as the asset come down, they also come down. I mean in price.

[asriloni]

Bro there is 1:1 rule for stable token. 1 stable token backed by 1 USD fiat. That's why it's being called as stable token because of the value peg to the fiat money, and not volatile as another altcoin in the market.

As for the inflation, it's only reducing the purchasing power of each dollar, but the decimal of dollar is still remain the same, one dollar is one dollar. The inflation is not changing the decimal of stable token, but only reduce the purchasing power of it.

The context of stable is related to the decimal value of the dollar itself, not the purchashing power of it. Don't take it wrong!

[Nwada001]

Stablecoin, according to them, is called that name because its value is stagnant; it doesn't fall and go up like other altcoins, and it's being backed up with either fiat or a physical asset.

But no coin is stable, any coin can lose its value and we will see it fall from that place they consider it to be stable, let's take a look at some fiat project that have been turning from being stable to a memecoin right now one example is UST which was once's a stablecoin for Lunalab.

[MAAManda]

"Stable" refers to its nature which is always stable with it's peg, for example the most common one we see & hear is stablecoin which is backed by dollar, it will always be 1:1 with dollar.

But don't be mistaken, unstable stablecoins do exist & have happened. IDK if you've been immersed in this industry before or after the Terra (LUNA) tragedy. They had an algorithmic stablecoin called $UST & it ultimately collapsed due to an unexpected on-chain event.

[Ivystar5]

OP I totally understand your concerns even the pegged currencies aren't even stable so there is absolutely no such thing as stable in the world of crypto or in currency in general because it goes up and down, volatile as cryptocurrencies but fact is that they are not as volatile as others that makes them seem a bit stable. you can say that the stability that they are talking about is just the mere fact that they can't go down as any other cryptocurrency.

[passwordnow]

They even called that way because if we call them unstable coins, that doesn't make sense?  
Well you've got a point op about the unstability of most stable coins. They're not usually $1 at all times but sometimes we'd see them $0.99 and even $0.98. But that's how they're made of and even the dollar, and other fiat currencies, they're also losing value from time to time depending on the state of their economy and exchange rate so, it's not that much different from the local/fiat currencies that we have. They're also unstable even if $1 = $1 to them but the purchasing power is lessened due to inflation.

[nelson4lov]

~Snipped
Why are they called “stable” when they are actually unstable?

They're stable most of the time like 98%of the time but not 100%.

For example, if you had $10,000 in 2020, nominally you still have $10,000 today, but its purchasing power is only about $6,800.Maybe they are considered “stable” only in terms of losing less purchasing power

Well, that's how they are designed to be. Imo, these stablecoins were originally created so we can have a universal currency that we can pair Bitcoin and other tokens in the early days. So if we want to say bitcoin is worth x amount of dollars, we can do so easily since it's impossible to get standard fiat onchain.

As for the value, it depends on the inflation in your country but as long as you hold your stablecoins and it doesn't depeg, you still end up with your tokens  with corresponding dollar value. In my country, holding stablecoins vs national currency was actually the best play in recent times.

[BenCodie]

They work on the concept that bitcoin is "volatile" and USD is "stable" in terms of the value for exchange. USD is always "worth" 1 of itself, while Bitcoin fluctuates against the USD.

The trade-off of "stable"coins? Exactly what you said, the hidden cost of deteriorating purchasing power and against other assets. Though this is not commonly known. The dub "stablecoin" is something that people understand, for the same reasons that many still do not properly comprehend that money deteriorates in purchasing power over time.

[TastyChillySauce00]

Stable just means it's pegged to fiat 1:1 disregarding the value of the fiat itself.

There's also stablecoin that is pegged to gold. So, really the word just means digitalized fiat nothing more nothing less in the case of fiat pegged stablecoin.

[stuff0577]

Stable just means it's pegged to fiat 1:1 disregarding the value of the fiat itself.

There's also stablecoin that is pegged to gold. So, really the word just means digitalized fiat nothing more nothing less in the case of fiat pegged stablecoin.

Great points raised here. The term “stablecoin” definitely creates the illusion of security, but as mentioned, it's only stable relative to its fiat peg. Which itself is constantly eroding in value due to inflation. It might be more accurate to call them “fiat mirrors” or “digitized fiat wrappers.” That said, they still serve a practical purpose in crypto markets by reducing volatility in the short term, even if they’re not a true store of value in the long run.

[Hispo]

Perhaps the concept you have about stable coins is not the most correct one, to beging with. It is not about the value of the asset you are holding which makes USDT, USDC and BUSD Stablecoins, but their neglectable volatility when compared to other digital asset like Bitcoin, Ethereum, Solana and other price floating coins, that is why they are attractive, so traders can close their positions on the market and go to sleep with little worries on volatily.

Also, depending on the way you store your Stablecoins, there are services which offer interests with are higher than the year inflation in the United States.

[famososMuertos]

Why are "stablecoins" called stable when they are pegged to fiat currencies like the dollar?We know that the dollar isn’t truly stable ,it loses about 7 to 10% of its value annually due to inflation. More and more, we notice that with the same amount of dollars, we can buy less and less. For example, if you had $10,000 in 2020, nominally you still have $10,000 today, but its purchasing power is only about $6,800.Maybe they are considered “stable” only in terms of losing less purchasing power

Why are they called “stable” when they are actually unstable?

Well, I'll give you the real benefit of the doubt with your context. Sometimes we think things are understood even if they're misnamed.

I think the bridge analogy works best here.

You've crossed a bridge... knowing it's not really a bridge, but... you still cross it, regardless of whether it doesn't really fulfill that function, but... you cross it at risk and use it as many times as you can. In fact, there are "bridges" that use harnesses, so in case the bridge fails, you stay "alive," so you finish crossing.

In conclusion, given the circumstances of the ecosystem and how easy it is to name them, some paths, risky crossings, are nicknamed bridges. The same thing happened with stablecoins, which, as you say, shouldn't be called that, but they fit the analogy I mentioned. In conclusion, use your harness and common sense.

[danherbias07]

There's no really stable currency out there. They are the ones that are as stable as possible, so I think that's why they are called that way.

They were introduced to stay 1:1 to the currency they are pegged to. But when you are from another country which doesn't use USD, it will look more unstable for us. It's like how tourists always think about the exchange rate first, and they won't sell their other countries' currency until they can maximize the highest exchange rate in the market.

[Josefjix]

In crypto space, stable coin were created to pair with every other assets just like USD is paired with every other country currencies, where you rate the value of your currency to USD in a centralized manner, likewise USDT, USDC and other onchain stable coins in the crypto industry. It serves as a coin comparison in USD pegged value.

As in the price movement, they are often stable but fluctuate slightly, the actual price range has been at 1-0.98 USDT which the difference isn't that much.

[Webetcoins]

Not really, they are backed, but that doesn't mean that it is 100% guaranteed. Just take Tether for example, they say it is 1to1 backed, but turns out, there was a point, when it wasn't really backed that much.

And on top of that, lets assume some government seizes all their holdings, what could they even do? Can you 100% absolutely guarantee that no government will ever do that? We can't, it's impossible to know, so we are just blindly trusting them and governments to do the right thing.

But, we all know that it is not going to be good at all. They are risky and we just use them because we have no other option. I personally use them very little, very rarely, I do not think that it means a lot for me and I should not be considering this as a good thing.

[Accardo]

Hedge to volatility, no risk, and fast transactions make up what a stable coin is to the market, and they're of different types; fiat, commodity, and crypto pegged. Whatever happens to the fiat purchasing power for fiat pegged stable coin affects the coin's buying power too, but the price stays where it is at 1:1.

[TastyChillySauce00]

Not really, they are backed, but that doesn't mean that it is 100% guaranteed. Just take Tether for example, they say it is 1to1 backed, but turns out, there was a point, when it wasn't really backed that much.

And on top of that, lets assume some government seizes all their holdings, what could they even do? Can you 100% absolutely guarantee that no government will ever do that? We can't, it's impossible to know, so we are just blindly trusting them and governments to do the right thing.

But, we all know that it is not going to be good at all. They are risky and we just use them because we have no other option. I personally use them very little, very rarely, I do not think that it means a lot for me and I should not be considering this as a good thing.

Regulation is getting tighter, the GENIUS act require stablecoin issuer to comply with the law to safeguard customers such as monthly reserve reports and annual audit.
Hopefully in the future such thing won't happen again.

It's good that tether's CEO actually stating that he wants to comply by that.

[Abiky]

Why are "stablecoins" called stable when they are pegged to fiat currencies like the dollar?We know that the dollar isn’t truly stable ,it loses about 7 to 10% of its value annually due to inflation. More and more, we notice that with the same amount of dollars, we can buy less and less. For example, if you had $10,000 in 2020, nominally you still have $10,000 today, but its purchasing power is only about $6,800.Maybe they are considered “stable” only in terms of losing less purchasing power

Why are they called “stable” when they are actually unstable?

They're called "stablecoins" because they're redeemable at a 1:1 ratio against the USD (regardless of inflation). Most of the centralized stablecoins are backed by real world USD reserves (usually in the form of treasuries and bonds), allowing them to maintain their value for long. Sometimes stablecoin issuers increase the supply of their stablecoin, but that doesn't mean they're printing money. Rather, they're increasing their USD reserves. Think of stablecoins as a sort of USD spot ETF or IOU.

People these days prefer convenience, so they will continue to use USD-backed stablecoins even if the USD itself gets weaker everyday. If you're worried about losing purchasing power, choose Bitcoin (or Gold) instead. We'll see how long will stablecoins last.

[Firstfrost]

The term “stablecoin” can be often misleading, they are refferred to as stable not because they preserve real-world purchasing power, it’s because they maintain a fixed peg to the U.S. dollar. So while 1 USDT is pegged to the USD which sometimes depreciate, you can’t escape inflation by holding USDT since it’s just a digital version of USD.

They’re stable in crypto terms given it’s not volatile but far from stable in the broader economic sense. Maybe we should stop calling them "stable" and start calling them ‘fiat mirrors’ LOL.