A stablecoin is a type of crypto asset designed to maintain a relatively stable value against a reference asset, most commonly a fiat currency such as the US dollar. Unlike Bitcoin and many other cryptocurrencies whose market prices can fluctuate substantially, stablecoins are designed around mechanisms intended to keep their value close to a particular reference price.
For example, a US-dollar stablecoin may be designed to trade around US$1.
Stablecoins are widely used within the cryptocurrency ecosystem for trading, transfers, decentralised finance (DeFi), payments and moving value between traditional financial systems and blockchain networks. The Bank for International Settlements notes that stablecoins have become an important bridge between fiat currencies and crypto markets.
However, the word “stable” does not mean risk-free or guaranteed. A stablecoin can lose its peg, and its ability to maintain value depends on the assets, technology, issuer, governance and redemption mechanism behind it.
What Is a Stablecoin?
A stablecoin is a digital token that aims to maintain a stable value relative to a specified asset or basket of assets.
The reference asset can be:
- A fiat currency such as the US dollar
- A group or basket of assets
- Cryptocurrency
- Commodities or other assets
- A mechanism based primarily on algorithms and token supply
The Financial Stability Board defines a stablecoin as a crypto asset that aims to maintain a stable value relative to a specified asset, or a pool or basket of assets.
The majority of prominent stablecoins are linked to the US dollar.
Simple Example
Suppose a stablecoin is designed to maintain a value of:
1 stablecoin ≈ US$1
If you hold 1,000 units, the design objective is for them to remain close to US$1, rather than fluctuating like BTC or ETH.
This does not mean that the token can never trade above or below US$1.
Stablecoin at a Glance
| Feature | Stablecoin |
| Type | Crypto asset |
| Main purpose | Maintain relatively stable value |
| Common reference | US dollar |
| Blockchain | Can operate on one or multiple blockchains |
| Backing | Fiat assets, crypto assets, commodities or other mechanisms |
| Examples | USDT, USDC and other stablecoins |
| Common uses | Trading, payments, transfers, DeFi and settlement |
| Price volatility | Generally designed to be lower than many unbacked crypto assets |
| Main risk | Loss of peg, reserve, issuer, liquidity and technology risks |
Why Were Stablecoins Created?
One of the main challenges of cryptocurrencies such as Bitcoin and Ether is price volatility.
Suppose a person wants to transfer value equivalent to ₹1 lakh internationally. If the cryptocurrency being transferred changes substantially in price during the transaction, the recipient may receive an asset worth considerably more or less than expected.
Stablecoins attempt to address part of this problem by combining:
Blockchain-based transferability + a stable-value design
This can make them useful for people and businesses that want to move digital value without taking the same level of direct price exposure as holding an unbacked crypto asset.
How Do Stablecoins Work?
The exact mechanism depends on the stablecoin.
A simplified model for a reserve-backed stablecoin is:
Reserve assets → Stablecoin issuance → Stablecoin circulation → Redemption → Stablecoin destruction
For example:
- An issuer receives qualifying reserve assets.
- Stablecoins are issued according to the arrangement’s rules.
- Users buy or receive the stablecoins.
- The tokens circulate between wallets and exchanges.
- A holder may redeem eligible tokens according to the issuer’s terms.
- The corresponding tokens may be removed from circulation.
The exact issuance, redemption and reserve arrangements vary between stablecoins.
For fiat-backed stablecoins, the ability to maintain the peg depends heavily on confidence in the reserves and the issuer’s ability to meet redemptions.
What Is a Stablecoin Peg?
A peg is the target relationship between the stablecoin and its reference asset.
For example:
1 USDC ≈ US$1
The stablecoin is said to be pegged to the US dollar.
A peg does not necessarily mean that the market price will remain exactly US$1 every second.
Market prices can temporarily move above or below the target.
Example
Suppose a stablecoin’s target is US$1.
| Market price | Relationship to peg |
| US$0.98 | Below peg |
| US$0.995 | Slightly below peg |
| US$1.00 | At peg |
| US$1.005 | Slightly above peg |
| US$1.03 | Above peg |
The mechanisms used to restore the price toward the target depend on the stablecoin’s design.
Types of Stablecoins
Stablecoins can be classified according to what supports or maintains their value.
The three broad categories commonly discussed are:
- Fiat-backed stablecoins
- Crypto-backed stablecoins
- Algorithmic stablecoins
Some stablecoins can also be described as commodity-backed or asset-backed depending on their underlying structure. The BIS identifies fiat-denominated assets, crypto collateral and algorithmic arrangements as major variants.
- Fiat-Backed Stablecoins
Fiat-backed stablecoins are designed to maintain their value through reserves linked to traditional currencies or related assets.
For a US-dollar stablecoin, reserves may include:
- Cash
- Bank deposits
- Short-term government securities
- Other high-quality liquid assets
The exact composition varies by issuer.
The BIS notes that major fiat-linked stablecoins are commonly backed by short-term dollar-denominated assets such as US Treasury securities and other liquid assets.
Examples
Common examples include:
- USDT
- USDC
These are among the largest stablecoins by market presence.
How It Works
A simplified example:
Suppose an issuer creates 1 million stablecoins.
The issuer’s reserve arrangement is designed to support the value of those tokens.
If users later redeem the tokens according to the issuer’s terms, the issuer uses eligible reserve assets to meet those redemptions.
The credibility of this model therefore depends on factors such as reserve quality, liquidity, governance, transparency and redemption rights.
- Crypto-Backed Stablecoins
A crypto-backed stablecoin uses other cryptocurrencies as collateral.
Because the collateral itself can be highly volatile, the system may require overcollateralisation.
Example
Suppose a protocol requires ₹150 worth of crypto collateral to support a stablecoin worth ₹100.
The extra collateral provides a buffer against changes in the collateral’s market value.
If the collateral falls substantially, the protocol may liquidate some collateral according to its rules.
This type of stablecoin can reduce reliance on a central issuer but introduces additional risks related to:
- Crypto-price volatility
- Liquidation
- Smart contracts
- Oracle systems
- Governance
- Market liquidity
- Algorithmic Stablecoins
An algorithmic stablecoin attempts to maintain its target value primarily through programmed mechanisms that adjust token supply or other economic incentives.
The mechanism can involve:
- Minting tokens
- Burning tokens
- Adjusting supply
- Incentivising buying or selling
- Using another token within the system
The BIS describes algorithmic stablecoins as arrangements that maintain value through algorithms that can mint or burn tokens and adjust supply according to market demand.
These systems can be particularly complex.
Importantly, an algorithm cannot guarantee stability merely because its rules are programmed into software.
If market confidence disappears, the mechanism may fail to maintain the intended price.
- Commodity-Backed Stablecoins
Some digital assets are designed to maintain value in relation to commodities such as gold.
For example, a token may be designed to represent exposure to a specified quantity of gold.
These assets are sometimes described as commodity-backed stablecoins or tokenised commodity assets.
Their risks can include:
- Commodity-price movements
- Custody arrangements
- Verification of reserves
- Redemption terms
- Issuer risk
- Legal ownership rights
A gold-linked token should therefore not automatically be treated as equivalent to holding physical gold.
Examples of Stablecoins
| Stablecoin | Common reference | Broad type |
| USDT | US dollar | Fiat/reserve-backed |
| USDC | US dollar | Fiat/reserve-backed |
| DAI | US dollar target | Crypto-backed/decentralised collateral model |
| Other stablecoins | Varies | Depends on design |
The classification of individual stablecoins can change as their mechanisms evolve, so users should review the current documentation and reserve structure rather than relying solely on a category label.
USDT vs USDC
USDT and USDC are two of the best-known US-dollar stablecoins.
Both aim to maintain a value close to US$1, but users should examine the individual issuer, reserve arrangements, disclosures, supported networks and redemption terms before using either.
| Feature | USDT | USDC |
| Reference | US dollar | US dollar |
| Type | Reserve-backed stablecoin | Reserve-backed stablecoin |
| Common use | Trading, transfers, crypto liquidity | Trading, payments, transfers and DeFi |
| Blockchain availability | Multiple networks | Multiple networks |
| Issuer arrangement | Tether ecosystem | Circle ecosystem |
| Main objective | Maintain dollar-linked value | Maintain dollar-linked value |
The table is a high-level comparison and does not establish that either stablecoin will always trade exactly at US$1.
Why Do Stablecoins Need Reserves?
A reserve-backed stablecoin relies on assets supporting the tokens in circulation.
Consider a simplified example:
Stablecoins in circulation = 100 million
The issuer’s arrangement may hold reserves intended to support those tokens.
If the reserve assets are liquid and sufficient, holders may have greater confidence that they can redeem their tokens according to the applicable terms.
If reserves are inadequate, illiquid or difficult to access, redemption pressure can become a serious problem.
This is one reason regulators and international financial organisations focus heavily on reserve quality, liquidity and redemption rights. The FSB recommends robust redemption arrangements and appropriate reserve and risk-management frameworks for global stablecoin arrangements.
What Happens When a Stablecoin Is Redeemed?
Suppose Priya owns 10,000 units of a reserve-backed stablecoin and wants to redeem them through an eligible redemption mechanism.
A simplified process may be:
- Priya submits a redemption request.
- The issuer or authorised intermediary verifies the request.
- The eligible stablecoins are transferred or returned.
- The issuer provides the corresponding fiat amount according to the applicable terms.
- The redeemed tokens may be removed from circulation.
Actual redemption rules vary considerably.
Some stablecoins may have minimum redemption amounts, eligibility requirements, fees, geographical restrictions or intermediary arrangements.
Therefore, holding a stablecoin on an exchange does not automatically mean that the holder has a direct legal redemption claim against the issuer.
How Does a Stablecoin Maintain Its Price?
Different mechanisms can be used.
Reserve Backing
A reserve-backed issuer holds assets intended to support the stablecoin.
Arbitrage
Market participants may buy a stablecoin when it trades below its target and sell it when it trades above the target.
For example, if a stablecoin designed to track US$1 trades at US$0.98, a trader may see an opportunity to buy it below the target.
If the stablecoin can be redeemed for US$1 under the applicable terms, the difference can create an arbitrage incentive.
This mechanism can help pull the market price toward the target, but it does not guarantee that the peg will always hold.
Collateralisation
Crypto-backed stablecoins can use collateral to support the value of issued tokens.
Supply Adjustment
Some algorithmic systems attempt to maintain their target by increasing or reducing token supply.
Why Can Stablecoins Lose Their Peg?
A stablecoin can trade away from its target for several reasons.
- Loss of Confidence
If users become concerned about reserves or the issuer, they may rush to sell or redeem the token.
- Liquidity Problems
If reserves cannot be liquidated quickly enough, redemption pressure can increase.
- Market Panic
A sudden wave of selling can push the market price below the target.
- Collateral Price Crash
Crypto-backed stablecoins can face pressure if their collateral loses value rapidly.
- Smart-Contract Failure
A bug or exploit can interfere with the mechanism supporting the stablecoin.
- Oracle Failure
Some decentralised systems depend on price oracles. Incorrect or manipulated price information can disrupt collateral and liquidation mechanisms.
- Banking or Counterparty Risk
Reserve-backed stablecoins can depend on banks, custodians and other financial institutions.
The FSB has highlighted liquidity, credit, operational, governance and reserve-related vulnerabilities associated with stablecoin arrangements.
What Is a Stablecoin Depeg?
A depeg occurs when a stablecoin moves materially away from its intended reference value.
For example, if a stablecoin is intended to remain around US$1 but falls to US$0.90, it has experienced a significant depeg.
A depeg can be:
- Temporary
- Persistent
- Partial
- Severe
The outcome depends on the cause and the mechanism supporting the stablecoin.
A depeg can result in losses even when the asset is marketed as a stablecoin.
Stablecoin vs Bitcoin
| Feature | Stablecoin | Bitcoin |
| Primary objective | Maintain stable value relative to a reference | Decentralised digital asset/payment network |
| Price target | Usually linked to another asset | No fixed price target |
| Supply | Depends on design | Protocol-defined issuance, 21 million maximum |
| Backing | May use reserves/collateral or algorithms | Not reserve-backed |
| Issuer | Often an identifiable issuer, depending on design | No central issuer |
| Volatility | Designed to be lower | Can be high |
| Blockchain | Can operate on various networks | Bitcoin blockchain |
| Main uses | Trading, transfers, settlement, DeFi | Value transfer, holding and payments |
The difference is fundamental:
Bitcoin’s value is not designed to be pegged to a currency.
A stablecoin is specifically designed to maintain a reference value.
Stablecoin vs Cryptocurrency
Stablecoins are a type of crypto asset.
However, not every cryptocurrency is a stablecoin.
For example:
- BTC = cryptocurrency, not a stablecoin
- ETH = cryptocurrency, not a stablecoin
- USDT = cryptocurrency/crypto asset designed as a stablecoin
- USDC = cryptocurrency/crypto asset designed as a stablecoin
The important distinction is the price-stabilisation objective.
Stablecoin vs CBDC
Stablecoins and Central Bank Digital Currencies (CBDCs) are different.
Stablecoin
A stablecoin is generally issued through a private or protocol-based arrangement and attempts to maintain a value linked to a reference asset.
CBDC
A CBDC is a digital form of central-bank money issued by a central bank.
For example, India’s Digital Rupee (e₹) is a central-bank digital currency, not a privately issued stablecoin.
| Feature | Stablecoin | CBDC |
| Issuer | Private entity or protocol, depending on design | Central bank |
| Value | Usually references another asset | Central-bank currency |
| Legal structure | Depends on issuer and jurisdiction | Determined by the issuing jurisdiction |
| Example | USDT, USDC | Digital Rupee |
| Blockchain requirement | May use blockchain/DLT | Not necessarily dependent on public blockchain |
What Are Stablecoins Used For?
Stablecoins have several uses within the digital-asset ecosystem.
- Crypto Trading
Traders can use stablecoins as a quote or settlement asset when buying and selling other cryptocurrencies.
For example:
ETH → USDT → BTC
Instead of converting directly between two volatile cryptocurrencies, a trader may use a stablecoin as an intermediate asset.
- Transferring Digital Value
Stablecoins can be transferred between compatible blockchain addresses.
Depending on the network, transfers may occur without traditional banking rails.
- DeFi
Stablecoins are widely used in decentralised finance.
They can be used for:
- Lending
- Borrowing
- Liquidity provision
- Decentralised exchanges
- Payments within protocols
- Cross-Border Transactions
Stablecoins can potentially facilitate digital transfers across jurisdictions.
However, users and businesses must still consider local laws, tax rules, foreign-exchange regulations and compliance requirements.
- Settlement
Businesses and financial platforms can use stablecoins as blockchain-based settlement assets in certain arrangements.
- Digital Payments
Some stablecoins are designed for payment-related use.
Their usefulness for payments depends on factors such as transaction costs, acceptance, regulatory treatment and the stability of the underlying mechanism.
Advantages of Stablecoins
Lower Price Volatility
Stablecoins are designed to reduce the price fluctuations associated with many other crypto assets.
Blockchain-Based Transfers
They can be transferred through blockchain networks.
Useful for Crypto Trading
Stablecoins can provide a relatively stable unit of account within volatile crypto markets.
Programmability
Because stablecoins can operate on programmable blockchains, they can interact with smart contracts.
The BIS notes that stablecoins can be integrated into smart contracts, enabling programmable transactions and other digital-finance functions.
Potential for Faster Settlement
Blockchain-based settlement can operate continuously rather than being restricted to traditional banking hours.
However, actual speed depends on the blockchain, network conditions and the application being used.
Risks of Stablecoins
- Depeg Risk
A stablecoin may lose its intended value.
- Reserve Risk
For reserve-backed stablecoins, users face questions about the quality, liquidity and sufficiency of reserve assets.
- Issuer Risk
A centralised stablecoin can expose users to the financial and operational risks of its issuer.
- Redemption Risk
The ability to redeem tokens depends on the stablecoin’s terms, eligibility requirements and operational arrangements.
- Smart-Contract Risk
Stablecoins operating through smart contracts can be exposed to coding vulnerabilities.
- Blockchain Risk
A stablecoin can depend on the security and availability of the blockchain on which it operates.
- Regulatory Risk
Stablecoin regulations differ across countries and continue to evolve.
- Counterparty Risk
Banks, custodians, exchanges and other intermediaries may form part of the stablecoin ecosystem.
- Liquidity Risk
A stablecoin can experience severe selling or redemption pressure.
The FSB has specifically highlighted the possibility of sudden loss of confidence and runs on stablecoin reserves.
- Scam Risk
Fake stablecoins, phishing websites and fraudulent investment schemes can target users who believe they are purchasing a well-known stablecoin.
How to Check a Stablecoin Before Using It
Do not evaluate a stablecoin only by its name or market price.
Consider the following:
- What Is the Reference Asset?
Is it linked to:
- US dollar?
- Another fiat currency?
- Gold?
- A basket?
- Cryptocurrency?
- What Supports the Peg?
Understand whether it is:
- Reserve-backed
- Crypto-backed
- Algorithmic
- Hybrid
- What Are the Reserves?
For reserve-backed stablecoins, examine available disclosures about:
- Reserve composition
- Liquidity
- Custody
- Independent attestations or reports
- Maturity of assets
- Who Issues It?
Identify the issuer and understand its legal structure.
- Can You Redeem It?
Check:
- Redemption process
- Minimum amount
- Fees
- Eligibility
- Geographic restrictions
- Direct vs intermediary redemption
- Which Blockchain Does It Use?
The same stablecoin name can exist on multiple networks.
Always confirm the correct network before transferring funds.
- Is It Audited or Attested?
Check what reports or independent verification are actually available.
Do not treat the words “audited” or “backed” as sufficient without reading the underlying information.
- What Are the Smart-Contract Risks?
For decentralised stablecoins, examine the contracts, collateral and governance model.
Example: How a Stablecoin Can Be Used
Suppose Rahul has ₹1,00,000 and wants to enter the crypto market without immediately purchasing BTC or ETH.
A simplified sequence could be:
Indian rupees → Exchange → Stablecoin → Crypto asset
Rahul may then use the stablecoin to purchase another crypto asset.
Alternatively:
Crypto asset → Stablecoin → Exchange → Fiat currency
The stablecoin can therefore act as an intermediate asset.
However, the actual tax and compliance consequences of each transaction depend on the jurisdiction and transaction structure.
Stablecoins in India
For Indian users, stablecoins need to be considered within India’s broader Virtual Digital Asset (VDA) tax and reporting framework where the particular token falls within the statutory definition.
The Income Tax Department states that gains from qualifying VDAs are subject to a 30% tax rate, along with applicable surcharge and cess, and provides a dedicated Schedule VDA for reporting income from transfers of VDAs.
This means that users should not assume that a stablecoin transaction is automatically tax-free merely because the token is designed to track the US dollar.
Stablecoin-to-Stablecoin Transactions
Suppose a user exchanges:
USDT → USDC
The fact that both assets are designed to maintain a stable value does not by itself establish that the transaction has no tax implications.
Users should maintain transaction records and determine the applicable treatment under the tax rules for the relevant transaction date and tax year.
Stablecoin TDS in India
India’s VDA framework also contains TDS provisions for qualifying transfers.
The Income Tax Department’s current 2026 materials show that the TDS framework transitioned from the earlier Section 194S/Form 26QE framework to the corresponding provisions under the new Income-tax Act framework for transactions from 1 April 2026 onward. The current challan-cum-statement is Form 141, including a schedule for TDS on VDA transfers under Section 393(1).
Therefore, users should check the provision and form applicable to the transaction date rather than relying on older crypto-tax articles.
Are Stablecoins Risk-Free?
No.
The main misconception is:
Stablecoin ≠ guaranteed money
A stablecoin is designed to maintain stability, but the outcome depends on its mechanism.
For example:
Reserve-backed stablecoin: depends on reserves, issuer and redemption.
Crypto-backed stablecoin: depends on collateral, liquidation mechanisms and smart contracts.
Algorithmic stablecoin: depends heavily on market incentives and supply-management mechanisms.
The FSB has noted that the term “stablecoin” itself should not be interpreted as a guarantee that the asset’s value will always remain stable.
Common Stablecoin Mistakes
Mistake 1: Assuming US$1 Is Guaranteed
A dollar-pegged stablecoin can temporarily or materially trade below or above US$1.
Mistake 2: Ignoring the Issuer
The issuer and its reserve-management arrangements can be important.
Mistake 3: Assuming All Stablecoins Are the Same
USDT, USDC, DAI and algorithmic stablecoins can use substantially different mechanisms.
Mistake 4: Ignoring the Blockchain
Sending a token using the wrong network can create a risk of loss.
Mistake 5: Confusing Stablecoin With Fiat Currency
A stablecoin designed to track the US dollar is not automatically the same thing as holding US dollars in a bank account.
Mistake 6: Assuming Stablecoin Trading Is Tax-Free
Stablecoins can fall within VDA tax provisions depending on the asset and transaction.
Mistake 7: Treating Yield as Guaranteed
Some platforms offer returns for depositing stablecoins. Such returns may involve lending, DeFi, market or counterparty risks and should not automatically be treated like bank-deposit interest.
Frequently Asked Questions
What is a stablecoin in simple words?
A stablecoin is a crypto asset designed to maintain a relatively stable value against another asset, most commonly the US dollar.
How does a stablecoin maintain its value?
It depends on the stablecoin. It may use fiat or other reserves, crypto collateral, algorithms, market incentives or a combination of mechanisms.
Is USDT a stablecoin?
Yes. USDT is a widely used US-dollar-linked stablecoin.
Is USDC a stablecoin?
Yes. USDC is designed to maintain a value close to one US dollar.
Is Bitcoin a stablecoin?
No. Bitcoin is not designed to maintain a fixed value against a fiat currency or another reference asset.
Is Ethereum a stablecoin?
No. ETH is Ethereum’s native cryptocurrency and its market price is not designed to remain fixed at a particular value.
What are the main types of stablecoins?
The major categories include fiat/reserve-backed, crypto-backed and algorithmic stablecoins. Commodity-backed arrangements are another category discussed in the market.
Can a stablecoin lose its value?
Yes. A stablecoin can lose its peg because of reserve problems, loss of confidence, liquidity shortages, collateral declines, smart-contract failures or other factors.
What is a stablecoin depeg?
A depeg occurs when a stablecoin moves materially away from its intended reference value.
Are stablecoins legal in India?
Stablecoins need to be considered under the applicable Indian legal, tax and regulatory framework. Their classification and the treatment of particular activities can depend on the asset and the activity involved.
Are stablecoins taxable in India?
Qualifying stablecoins can fall within the VDA tax framework. The Income Tax Department currently provides for a 30% special tax rate on qualifying VDA transfer income, along with applicable surcharge and cess.
Is stablecoin trading tax-free because its price is stable?
No. Price stability does not automatically determine tax treatment.
Are stablecoins safer than Bitcoin?
They have a different risk profile rather than simply being “safer”. Stablecoins generally aim for lower price volatility, but they introduce risks involving reserves, issuers, redemption, liquidity, smart contracts and regulation.
Key Takeaways
- A stablecoin is a crypto asset designed to maintain a relatively stable value against a reference asset.
- The US dollar is the most common reference asset.
- Stablecoins are widely used for trading, transfers, DeFi and settlement.
- Major types include fiat-backed, crypto-backed and algorithmic stablecoins.
- USDT and USDC are well-known examples of dollar-linked stablecoins.
- Reserve-backed stablecoins depend heavily on the quality and liquidity of their backing assets.
- Crypto-backed stablecoins use cryptocurrency collateral and can involve liquidation risk.
- Algorithmic stablecoins use programmed mechanisms to influence supply and demand.
- A peg is the target relationship between a stablecoin and its reference asset.
- A stablecoin can temporarily or permanently lose its peg.
- Stablecoins can interact with smart contracts and DeFi applications.
- A stablecoin is not the same as fiat currency or a CBDC.
- “Stable” does not mean guaranteed, risk-free or immune to market stress.
- Users should examine reserves, issuer, redemption rights, blockchain, smart contracts and regulatory arrangements before using a stablecoin.
- In India, qualifying stablecoin transactions can have VDA tax and TDS implications.
- India’s 2026 tax framework uses updated provisions and forms for VDA reporting and TDS, so older crypto-tax guides may contain outdated section or form references.
Conclusion
Stablecoins are designed to combine some of the technological features of cryptocurrency with a more stable reference value.
Their basic concept is:
Reference asset → Stabilisation mechanism → Stablecoin → Blockchain transfer → Redemption or continued circulation
A reserve-backed stablecoin may use cash and short-term liquid assets, while crypto-backed and algorithmic stablecoins use different mechanisms to maintain their target value.
This makes stablecoins useful within cryptocurrency markets, particularly for trading, transfers, DeFi and blockchain-based settlement. At the same time, they introduce their own risks. A stablecoin can lose its peg, reserves may face liquidity or credit risks, issuers can face operational problems, and decentralised systems can experience smart-contract or collateral failures.
For Indian users, another important consideration is taxation. A stablecoin’s relatively stable price does not automatically make transactions tax-free. Qualifying VDA transfers can fall under India’s VDA tax framework, so maintaining accurate transaction records is important.
The key lesson is simple: a stablecoin is designed for stability, not guaranteed stability. Understanding what supports the peg, who controls the system, how redemption works and what risks are involved is essential before using one.
