The Stable Truth: 9 Myths About Stablecoins Debunked

We break down the biggest misconceptions about stablecoins with real-world examples and data-backed truths — made easy for everyone.

SMooTH

Posted on Sep 15, 2025

Stablecoins might have “stable” in the name, but the narratives around them?

Not so much.

Between crypto Twitter hot takes, clickbait headlines, and half-remembered stories from 2022, there’s a lot of confusion about what stablecoins are, how they work, and where they actually fit in the financial system.

So let’s clear the air.

Below are nine common myths about stablecoins — and the reality behind them, explained in plain English.

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Table of contents

Myth #1️⃣: All stablecoins are identical (one stablecoin is as good as another)Myth #2️⃣: Stablecoins always stay exactly at $1.00 Myth #3️⃣: Stablecoins are completely risk-free Myth #4️⃣: Stablecoins aren’t really backed, they’re just “printed” out of thin air Myth #5️⃣: All stablecoins are 100% fiat-backed Myth #6️⃣: Stablecoins are only useful for crypto trading Myth #7️⃣: Stablecoins operate in a lawless grey area Myth #8️⃣: Stablecoins will make banking obsolete Myth #9️⃣: Stablecoins are only for the tech-savvy Conclusion

Myth #1️⃣: All stablecoins are identical (one stablecoin is as good as another)

Reality: Stablecoins come in many flavors — and they don’t all work the same way. Their backing, stability mechanisms, and risks vary widely:

💵 Fiat-backed

Backed 1:1 by cash or cash-like assets. Most stable, but centralized.

e.g., USDT, PYUSD, EURC

🪙 Crypto-backed

Backed by volatile tokens like ETH, but over-collateralized to absorb price swings.

e.g., DAI, LUSD

⚙️ Algorithmic

Peg held using market incentives rather than hard assets (a category with mixed track records).

e.g., UST

🔄 Hybrid

Mix of fiat, crypto, or algorithmic. Tries to balance stability & efficiency.

e.g., FRAX

Issuers also vary in transparency and regulation.

For instance, Paxos’s USDP is overseen by the New York Department of Financial Services; Tether’s USDT is issued offshore with fewer disclosure requirements.

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TL;DR

Not all stablecoins are the same — their backing, stability, and trust vary.

Myth #2️⃣: Stablecoins always stay exactly at $1.00

Reality: They aim to, but nothing is perfectly glued to a peg.

Even the safest designs can briefly dip or spike due to market events. In March 2023, USDC dropped to ~$0.88 after some reserves were stuck in a failing bank — it recovered once confidence returned.

The key is relative stability: good stablecoins minimize volatility compared to BTC or ETH, but they’re not magically immune to market stress.

Poorly designed ones can fail entirely (like TerraUSD).

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TL;DR

They aim for $1, but small (or big) deviations can happen.

Myth #3️⃣: Stablecoins are completely risk-free

Reality: Less price volatility doesn’t mean zero risk. Stablecoins are still a relatively new form of money, and the market around them is evolving.

Here’s what can still go wrong:

🏦 Issuer risk

The company behind it mismanages reserves or refuses redemption.

e.g., Tether faced fines in 2021 for misleading statements about its reserves

💰 Collateral risk

Reserves lose value due to events like bank failures or bond defaults.

e.g., The USDC de-peg mentioned above

📜 Regulatory risk

Laws change, limiting redemption rights or usage.

e.g., The recently signed GENIUS Act in the U.S. could change how stablecoin holders are repaid if an issuer goes bankrupt, potentially making redemption harder in some cases

🛠 Technical risk

Smart contract bugs or hacks can lead to losses.

e.g., The Resupply stablecoin protocol lost $9.5M in a smart contract exploit

They’re steadier than most crypto, but not bulletproof. Treat them like a financial product, not a magic dollar.

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TL;DR

Less volatile doesn’t mean risk-free — other risks still apply.

Myth #4️⃣: Stablecoins aren’t really backed, they’re just “printed” out of thin air

Reality: Reputable stablecoins are backed, and often by highly liquid assets.

As we saw in Myth #1, the type of backing can vary, but that doesn’t mean there’s nothing behind the token.

However, backing alone isn’t enough — transparency matters. Some issuers publish regular, independent attestations of reserves; others offer limited or outdated reports, leaving holders to trust their word. (re: Tether’s example above)

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TL;DR

Reputable stablecoins are backed by real assets, not printed from nothing.

Myth #5️⃣: All stablecoins are 100% fiat-backed

Reality: You get the gist. Stablecoins can be backed by a range of assets — not just cash in a bank account.

A few interesting examples:

DAI: A decentralized, crypto-backed stablecoin overcollateralized with ETH and other assets, widely used in DeFi lending and borrowing.

FRAX: A hybrid stablecoin that blends fiat and crypto reserves, aiming to balance stability with capital efficiency.

PAXG: A commodity-backed stablecoin representing physical gold stored in vaults, giving holders exposure to gold without moving it.

USDe: A yield-bearing stablecoin that generates passive returns from staking and institutional lending, targeting more advanced financial use cases.

Each model has trade-offs in stability, scalability, and trust. Read the whitepaper before you assume it’s cash-backed.

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TL;DR

Not all are backed by cash — some use crypto, commodities, or algorithms.

Myth #6️⃣: Stablecoins are only useful for crypto trading

Reality: That’s where they started — but the use cases have exploded.

Today, stablecoins power:

🌍 Cross-border payments & remittances

Cheaper and faster than traditional money transfers.

e.g., Filipino overseas workers sending USDT home via mobile wallets.

🛒 E-commerce

Enabling instant settlement without card fees or chargebacks.

e.g., PayPal USD (PYUSD) for online purchases and digital services.

📉 Inflation hedging

Letting people in unstable economies store value in USD-pegged assets.

e.g., Argentinians using USDC to avoid peso depreciation.

🏦 DeFi lending, borrowing, yield farming

Providing the base currency for on-chain finance.

e.g., DAI in lending protocols like Aave or MakerDAO vaults.

If you’ve ever tipped a creator in USDC or paid a contractor abroad, you’ve seen stablecoins at work far beyond an exchange.

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TL;DR

They’re used far beyond trading — from payments to savings to remittances.

Myth #7️⃣: Stablecoins operate in a lawless grey area

Reality: Not anymore. Stablecoins did operate with minimal oversight until around 2019, and the regulatory push has been accelerating ever since.

Well-run issuers often want clear rules.

Paxos, for example, is fully regulated in New York and undergoes audits. Globally, new laws are focusing on reserve quality, redemption rights, and transparency.

Regulation helps weed out bad actors and integrate stablecoins into mainstream finance. The future? Expect more guardrails, not fewer.

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TL;DR

Regulation is increasing and often welcomed to build trust and a stable future (pun intended).

Myth #8️⃣: Stablecoins will make banking obsolete

Reality: Different systems, different rules — and different strengths.

Banks create money by lending most of what you deposit, while stablecoins hold the full amount in reserve so they can redeem instantly.

Let’s break this down.

🏦 Banks

operate on fractional reserves, meaning they keep only a small portion of deposits in cash and lend out the rest to earn interest.

This fuels economic growth but also creates a mismatch between how much cash they hold and how much depositors could ask for at once (which is why deposit insurance exists).

🪙 Stablecoins

by design, should be fully reserved. For every $1 token in circulation, the issuer holds at least $1 in high-quality liquid assets.

That makes them better suited for instant digital redemptions without needing government insurance.

But here’s the catch — most stablecoin reserves still sit in traditional banks or money market funds. Banks provide the secure custody and infrastructure, while stablecoins provide the digital wrapper and global transfer rails.

In other words:

Banks make stablecoins possible by safeguarding their reserves.

Stablecoins can make banks more useful in the digital economy.

They’re not here to erase banking, but to complement it — especially for fast, global, digital-first money movement.

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TL;DR

Stablecoins aren’t replacing banks — they operate differently and can complement them.

Myth #9️⃣: Stablecoins are only for the tech-savvy

Reality: If you can use PayPal, you can use a stablecoin.

Early adoption meant juggling private keys, exchange accounts, and gas tokens — intimidating for anyone who wasn’t deep into crypto.

Today, fintech apps, exchanges, and payment platforms handle the complexity behind the scenes, so sending USDT can feel as simple as sending a text.

Newer infrastructure is making it even easier. Plasma, for example, lets users send stablecoins without holding a separate token for gas, removing one of the last big friction points for non-crypto users.

This is especially powerful for cross-border payments (see Myth #6), where the sender and receiver just see money arriving instantly, with no extra fees or blockchain headaches.

The blockchain is invisible to the user — they just see money moving instantly, anywhere, without extra fees or hoops to jump through.

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TL;DR

They’re now easy to use — if you can use a payment app, you can use a stablecoin.

Conclusion

Stablecoins have come a long way from their early days as a traders-only tool.

They’ve weathered market shocks, sparked regulatory debates, and powered everything from remittances to DeFi experiments.

They’re not perfect — and they’re certainly not risk-free — but with the right design, transparency, and infrastructure, they can make moving money as easy as sending an email.

And with purpose-built rails like Plasma, we’re inching closer to a future where the term “cross-border payment” sounds as outdated as “long-distance call.”

Whether you’re sending $5 to a friend or $5M across the world, stablecoins are here to stay.

Just make sure you know which myths to ignore along the way.

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Disclaimer

This article is for educational purposes only and should not be taken as financial, legal, or investment advice.

This piece was created in partnership with Plasma, but all research, analysis, and opinions expressed are independent and our own.

Always do your own research before making financial decisions.