Stablecoin Glossary: Key Terms Every Beginner Should Know

A stablecoin glossary is a reference for the specific vocabulary — peg, collateralization ratio, redemption, attestation, and related terms — used to describe how dollar-pegged crypto tokens maintain their value and how trustworthy that mechanism actually is. Knowing these terms is the difference between reading a stablecoin's disclosures and just reading its marketing.

Stablecoins are the most-used category of crypto asset by transaction volume, acting as the dollar-equivalent rails for trading, payments, and DeFi. But "stablecoin" covers a wide range of designs with very different risk profiles, and the words used to describe them often hide important distinctions. Here's what the core terms actually mean.

Peg

The peg is the target value a stablecoin is designed to track — almost always $1.00 USD. A stablecoin "holding its peg" means its market price stays close to that target; "de-pegging" means it has drifted away, either temporarily (a liquidity wobble) or permanently (a design failure). Peg strength depends entirely on the mechanism backing it, which is why it's worth understanding how stablecoins actually work before assuming any two stablecoins are equally reliable.

Collateralization ratio

The collateralization ratio is the value of assets backing a stablecoin divided by the value of stablecoins in circulation. A ratio of 100% means $1 of reserves exists for every $1 issued — full backing. A ratio above 100% is overcollateralized, common in crypto-backed stablecoins like DAI, where more value is locked than tokens issued to absorb price swings in the collateral. A ratio at or below 100% with no real reserves — instead relying on an algorithm and a second token to maintain the peg — is what collapsed with TerraUSD in 2022. Lower collateralization generally means higher fragility under stress.

Redemption

Redemption is the ability to exchange a stablecoin directly for the underlying asset (usually actual dollars or Treasury holdings) at the issuer, at the pegged rate. Full, reliable redemption is what keeps a stablecoin's market price anchored — arbitrageurs buy below $1 and redeem at $1, or mint at $1 and sell above $1, closing any gap. Some issuers restrict redemption to large institutional accounts, minimum amounts, or specific jurisdictions, which weakens the arbitrage mechanism for everyday holders and can let the price drift further from $1 in practice.

Attestation vs. audit

An attestation is a point-in-time report, usually from an accounting firm, confirming that reserves matched or exceeded circulating supply on a specific date. An audit is a deeper, ongoing examination of financial controls and processes, not just a snapshot. Most major stablecoin issuers publish monthly attestations rather than full audits — useful, but weaker evidence than a true audit, since reserves could theoretically be moved between attestation dates. Reading the difference matters more than reading the headline "backed 1:1" claim.

Fiat-collateralized, crypto-collateralized, algorithmic

These describe what backs the peg:

Type	Backing	Example mechanism	Key risk
Fiat-collateralized	Cash and cash-equivalents held by an issuer	USDC, USDT	Issuer solvency, custodial/regulatory risk
Crypto-collateralized	Overcollateralized crypto assets locked in smart contracts	DAI	Collateral price crash, liquidation cascades
Algorithmic	Code and market incentives, minimal hard collateral	Failed TerraUSD model	Death spiral / total de-peg

Minting and burning

Minting creates new stablecoin units, usually when a user deposits collateral. Burning destroys units, usually when a user redeems collateral back out. The mint/burn mechanism is what keeps supply matched to backing in a well-designed system — supply should only grow when new backing enters, and shrink when it leaves.

Depeg event

A depeg event is a period where a stablecoin's market price diverges meaningfully from its $1 target. Depegs range from brief (a large trade briefly moves price, then arbitrage restores it within minutes) to catastrophic (mechanism failure, as with TerraUSD, where price never recovers). Depeg risk is exactly why understanding the risks of unusually high stablecoin yields matters — yield is often the reward for taking on depeg risk, disclosed or not.

Reserve composition

Reserve composition describes what assets actually back a fiat-collateralized stablecoin — cash, short-term US Treasuries, commercial paper, or other instruments. Reserves concentrated in cash and short-dated Treasuries are considered lower-risk and more liquid than reserves holding commercial paper or less liquid instruments, which is why issuers' reserve breakdowns (published in attestations) are worth reading rather than assuming.

Why this vocabulary matters

Every one of these terms answers a version of the same question: what happens to my money if things go wrong? A stablecoin with full fiat backing, frequent attestations, unrestricted redemption, and conservative reserves has answered that question well. One relying on algorithmic mechanics, opaque reserves, or no meaningful redemption path has not — regardless of how it's marketed. These terms also come up constantly around DeFi lending and yield products, since stablecoins are the base asset for most of that activity. For quick lookups on adjacent concepts, the glossary is the fastest reference, and the stablecoins data page tracks current supply and issuer data across the market.

Bottom line

Stablecoin marketing tends to compress a lot of nuance into the word "stable." Learning to distinguish peg from collateralization ratio, attestation from audit, and full backing from algorithmic backing lets you evaluate any new stablecoin on its actual mechanics rather than its branding — which is the single most useful skill for avoiding the next depeg before it happens to you.