May 2026 · 5 min read
Stablecoins Explained: USDT, USDC, and Why They Are Dry Powder
Stablecoins are the backbone of crypto trading, but they behave nothing like Bitcoin. Here is what backs them, the risks to watch, and why your tracker should treat them as cash rather than profit.
Stablecoins are the quiet infrastructure of crypto. They account for a huge share of trading volume, yet they are designed to do the opposite of every other crypto asset: stay still. Understanding what they are — and what they are not — is essential to reading your portfolio correctly.
What Is a Stablecoin?
A stablecoin is a cryptocurrency designed to hold a steady value, almost always pegged to $1. The two dominant stablecoins are USDT (Tether) and USDC (USD Coin). Others include DAI, FRAX, and TUSD.
Their purpose is to give traders a dollar-equivalent that lives on the blockchain — fast to move, available 24/7, and usable across exchanges and DeFi without converting back to a bank account.
How Stablecoins Stay Pegged
Not all stablecoins maintain their peg the same way:
Fiat-backed (USDT, USDC). Each token is supposedly backed by one real dollar (or equivalent assets like short-term treasuries) held in reserve. You trust the issuer to hold genuine reserves and honour redemptions. USDC, issued by Circle, publishes regular attestations; Tether has historically faced more scrutiny over its reserves.
Crypto-collateralised (DAI). Backed by a surplus of other crypto assets locked in smart contracts. If the collateral falls in value, the system liquidates positions to maintain the peg.
Algorithmic. These attempt to hold the peg through supply-and-demand mechanisms with little or no collateral. The catastrophic collapse of TerraUSD (UST) in 2022, which erased tens of billions of dollars, showed how fragile pure algorithmic designs can be. Treat algorithmic stablecoins with extreme caution.
Why Stablecoins Are "Dry Powder," Not Profit
Here is the key insight for portfolio tracking: a stablecoin is not an investment with upside. It is cash that happens to live on-chain.
If you hold $10,000 in USDC, you do not have a position that can gain or lose value with the market — you have $10,000 ready to deploy. Counting it in your profit-and-loss calculation makes no sense; its "return" is essentially zero by design.
This is why a well-built tracker separates stablecoins from your invested assets. WalletLens classifies stablecoins as a Cash & Stables category and excludes them from your invested total and P&L, while still counting them in your overall net worth. The result: your reported profit reflects only the assets actually exposed to the market, and your stablecoin balance shows as the dry powder it is.
The Strategic Role of Stablecoins
Holding some stablecoins is a deliberate strategy, not idle money:
Buying the dip. When the market crashes, the people who profit are those with cash ready. Stablecoins let you buy without first selling something at a loss or waiting days for a bank transfer.
Reducing volatility. Rotating a portion of profits into stablecoins during euphoric markets locks in gains and lowers your portfolio's overall risk.
Earning yield. Stablecoins can earn interest in various venues, though every yield source carries its own risk — higher advertised returns usually mean higher risk.
A common guideline is to keep 5–15% of a crypto portfolio in stablecoins as a reserve. Too little and you cannot act on opportunities; too much and you may be over-hedged and missing upside.
The Risks You Should Know
Stablecoins are not risk-free:
De-peg risk. Even major stablecoins can briefly trade below $1 during stress. USDC slipped to around $0.88 for a weekend in March 2023 when some of its reserves were caught in a bank failure, before fully recovering.
Issuer and reserve risk. A fiat-backed stablecoin is only as good as the reserves behind it and the issuer's willingness to redeem.
Regulatory risk. Stablecoins sit squarely in regulators' sights worldwide. Rules can change how they operate or who can hold them.
Smart-contract risk. For decentralised stablecoins, a bug in the underlying contracts can threaten the peg.
Practical Takeaways
- Treat stablecoins as the cash portion of your portfolio, not as an investment with returns.
- Prefer well-established, transparently-backed stablecoins over exotic high-yield ones.
- Keep a deliberate reserve so you can buy opportunities without selling at a loss.
- Use a tracker that separates stables from invested assets so your P&L is honest.
Conclusion
Stablecoins make crypto usable, but they are a fundamentally different instrument from the assets they help you buy. Think of them as dollars with superpowers — fast, global, programmable cash — and account for them as the dry powder they are. Your portfolio's real performance becomes far clearer once stablecoins are in their own bucket.
Track crypto, stablecoins, and your full net worth free at walletlens.live — no account needed.