Stablecoin Risks: What Can Go Wrong and How to Protect Yourself

When you hold a stablecoin, a cryptocurrency designed to maintain a steady value, usually tied to a fiat currency like the US dollar. Also known as fiat-backed stablecoin, it’s meant to be the safe harbor in crypto’s wild seas. But that safety is only as strong as the system behind it. Many think stablecoins are just digital dollars—no volatility, no risk. That’s a dangerous myth. In 2022, one of the biggest stablecoins lost its peg and crashed to 70 cents. Thousands lost money overnight. It wasn’t a hack. It was a failure of trust, transparency, and reserves.

Behind every stablecoin is a promise: for every coin in your wallet, there’s a dollar (or asset) held somewhere. But who’s holding it? Is it cash in a bank? Corporate bonds? Risky loans? Some issuers don’t publish real-time audits. Others use opaque reserves that could vanish if markets turn. Even stablecoin reserve, the assets backing a stablecoin’s value can be misleading—like a bank statement that hides bad debts. Then there’s crypto regulation, government rules that control how stablecoins are issued, stored, and traded. In the U.S., Europe, and Brazil, regulators are tightening rules. Some countries ban certain stablecoins outright. If your coin gets blacklisted, you can’t trade it. No warning. No refund.

And it’s not just about the issuer. If a major exchange freezes withdrawals, or if a bank cuts off access to the stablecoin’s reserves, the whole thing can unravel fast. We’ve seen it happen. You don’t need a hack to lose money—just a broken promise. That’s why holding large amounts of any stablecoin without understanding its backing is like keeping cash in a company that won’t show you its balance sheet.

Below, you’ll find real cases where stablecoins failed, where regulators stepped in, and where users got burned—not by hackers, but by the system itself. These aren’t hypotheticals. These are the risks you’re facing right now if you assume stablecoins are safe by default. Know what’s behind the number on your screen before you trust it.