Stablecoin

A stablecoin is a cryptocurrency pegged to a stable asset such as the US dollar. Bitcoin moved from 16k to 60k in a year. That swing makes it a poor unit of account. Stablecoins try to hold a fixed value through backing. USDC and USDT are fiat-backed. Issuers hold reserves in banks. For each coin in circulation they claim to hold a dollar.

Celsius collapsed and customers lost access to stablecoins after reserve mismanagement.

DAI is crypto-collateralized. You deposit crypto worth more than the coins you mint. Over-collateralization buffers price drops. If collateral falls below a threshold, the system sells it. That is transparent and does not rely on a bank, but it is capital heavy. You might need to deposit 150 dollars of crypto to mint 100 stablecoins.

Algorithmic stablecoins hold the peg with incentives and arbitrage. They usually fail when markets turn. You cannot trade well on a DEX if you keep converting between volatile coins. You cannot lend well if collateral value swings wildly. Stablecoins give DeFi a unit that holds still. Bitcoin swung from 16k to 60k in a year. Circle's USDC page describes a dollar-backed token.

Tether publishes reserves for USDT. Both are centralized issuers, not algorithms.