Main types of stablecoins: by collateral, pegging mechanism, and regulation

Classification of stablecoins by type of collateral

Based on this criterion, stablecoins fall into two main types: collateralized and non-collateralized.

Non-collateralized stablecoins

Non-collateralized stablecoins include algorithmic stablecoins, which rely on algorithms and smart contracts to control issuance instead of reserves.

This is the riskiest type of stablecoin, as without reserves, investors risk losing funds if the peg is broken, or in other words, if the stablecoin loses parity with the US dollar or another base currency.

A notable example occurred in 2022 with one of the most popular stablecoins at the time, TerraUSD (UST). Due to a massive capital outflow, UST lost its peg to the US dollar amid a sell-off of its associated cryptocurrency, Terra (LUNA), triggering the so-called "death spiral." As a result, both tokens plummeted by over 99% within weeks.

Most non-collateralized stablecoins use supply control mechanisms: to mint a stablecoin, a corresponding amount of base tokens must be burned, and vice versa. This model makes algorithmic stablecoins generally decentralized, as will be discussed in further detail.

However, there are also collateralized algorithmic stablecoins, which, in addition to smart contracts, maintain price stability by utilizing reserves in other cryptocurrencies. For example, USDD on Tron employs an overcollateralization mechanism, making it an "over-collateralized" stablecoin. As of July 2025, USDD is backed by crypto reserves exceeding 109% of its issuance.

UST used LUNA token burning for issuance, while USDD relies on burning Tron (TRX) tokens. USDD remains one of the few algorithmic stablecoins — along with FRAX and Celo Dollar (CUSD) — that has managed to preserve its peg to the US dollar.

Collateralized stablecoins

Collateralized stablecoins are further divided based on the type of asset held in reserve: fiat currency, cryptocurrency, or commodities.

Fiat-collateralized stablecoins

For example, the most capitalized stablecoins, Tether (USDT) and USD Coin (USDC), are backed 1:1 by fiat currency, meaning investors must deposit an equivalent amount of USD to mint them. In practice, reserves are rarely composed solely of cash — they often include other assets, such as US Treasury bonds and various securities.

Other fiat-backed stablecoins include:

Commodity-collateralized stablecoins

Commodity-backed stablecoins are collateralized by physical assets such as gold, oil, or even real estate. Notable examples include gold-backed stablecoins like:

Other commodity-backed stablecoins include Petro, backed by oil, and SwissRealCoin, supported by Swiss real estate.

Fiat- and commodity-backed stablecoins are generally less exposed to crypto market volatility due to their more stable reserve assets.

Crypto-collateralized stablecoins

This type includes stablecoins backed by a variety of digital assets. For example, DAI uses a collateralized debt position (CDP) model, similar to a lending system.

The collateralization ratio can reach 150%, depending on the crypto asset used. To mint 100 DAI, you might need to deposit up to $150 worth of collateral. Accepted collateral includes ETH, WBTC, LINK, and stablecoins such as USDT and USDC.

Another example is Ethena USDe (USDe), which is slightly behind DAI in terms of market cap. Its reserves include Bitcoin (BTC), Ethereum (ETH), liquid staking tokens (LSTs), and highly liquid assets such as USDC, UST, USDt, sSUS, and sDAI.

Stablecoins backed by non-standard asset types

Non-traditional assets back some stablecoins. For instance, Ondo US Dollar Yield (USDY) is a tokenized note that yields income from US Treasury bonds. Unlike others, the price of USDY increases with accrued income and, as of July 2025, exceeds $1.09.

Hybrid stablecoins

Lastly, hybrid models combine various types of collateral. These partially collateralized stablecoins include:

USDD (Tron) — both algorithmic and crypto-collateralized,
FRAX uses a hybrid partial collateral model.

Classification by pegging mechanism

As mentioned, initial pegging mechanisms relied either on reserves or token burn/mint algorithms. This categorizes stablecoins into two main types: collateralized and algorithmic.

However, there's also a third type — synthetic stablecoins. Their stability is maintained through futures or other derivatives using specific trading strategies, such as delta hedging.

A key example is sUSD from the Synthetix protocol. However, this approach also carries risks: sUSD has repeatedly lost its USD peg, falling below $0.90. In March 2025, it again depegged, and as of July 2025, it still trades around $0.92.

Classification by governance and regulation

Centralized vs. decentralized

Based on governance, stablecoins can be either centralized or decentralized.

Centralized stablecoins have their issuance fully controlled by the issuer. This includes nearly all fiat- and commodity-backed stablecoins:

USDT,
USDC,
USD1,
FDUSD,
PYUSD,
PAXG,
XAUT,
EURT,
EURC, etc.

Access to centralized stablecoin issuance is usually limited. For example, Tether requires a minimum of $100,000 to transact directly with the issuer. However, users can trade these tokens freely on centralized (CEX) and decentralized (DEX) exchanges.

Decentralized stablecoins rely on smart contracts and autonomous algorithms for issuance. Their governance is typically handled by decentralized autonomous organizations (DAOs).

Regulated vs. unregulated

Stablecoins can also be classified as either regulated or unregulated, depending on their compliance with legal standards.

Although USDT is the largest by market cap, it is not fully regulated, despite being legal in some jurisdictions.

For example, USDT is banned in the EU due to a lack of MiCA compliance. Other unregulated stablecoins include:

DAI,
USDe,
USDD,
FRAX.

Some stablecoins are regulated in specific jurisdictions:

EU: USDC, EURC, EURI, EURe, eUSD, EURD, EURQ, USDQ, EURR, USDR;
UAE: USDT, AE Coin;
Singapore: USDG, XSGD;
Canada: USDC, QCAD.