Crypto · Beginner · 4 min

Altcoins, tokens, stablecoins

You can tell altcoins, tokens and stablecoins apart and explain why a stablecoin is only as stable as what backs it.

Thousands, three groups

Bitcoin and ether are the two largest crypto assets, but they are far from the only ones. Listing sites track thousands of others, with new ones appearing every day.

The names and logos are endless, but most of them fit into three groups. One of these groups even promises the opposite of what crypto is known for: no price movement at all. This lesson sorts them and explains what stands behind each.

Coin, token, stablecoin

Altcoins. An altcoin is any coin other than bitcoin that runs on its own blockchain. Ether is technically one. Most altcoins are much smaller, trade little and depend on a project team. Many have lost nearly all their value over time.

Tokens. A token is a crypto asset created on an existing blockchain, often with a smart contract on Ethereum or a similar network. Tokens can represent a project's currency, voting rights in an app, a game item, or nothing in particular. Creating one is easy and cheap, which is why so many exist.

Stablecoins. A stablecoin aims to keep a fixed value, usually one US dollar or one euro. There are different designs:

Reserve-backed: the issuer holds cash and short-term securities equal to the coins in circulation and promises to redeem them.
Crypto-backed: other crypto assets serve as collateral, usually more than the stablecoin's value.
Algorithmic: a mechanism of supply and demand tries to hold the price, without full reserves.

A stablecoin is only as stable as its backing and the trust in it. The SEC's case against Terraform shows what can happen: when the algorithmic stablecoin TerraUSD lost its dollar link in May 2022, about 40 billion dollars in market value were wiped out almost overnight.

In the EU, the MiCA regulation sets rules for stablecoins, including reserves and redemption rights. It distinguishes e-money tokens, tied to a single official currency, from asset-referenced tokens tied to other assets or baskets.

Stable until it wasn't

A fictional algorithmic stablecoin has traded at 1.00 dollar for a year. Its holders earn high interest in an app built around it.

Large holders start to withdraw. The coin dips to 0.98.
The mechanism meant to restore the price creates more of a linked coin, whose value falls.
Confidence breaks. Within days, the stablecoin trades at 0.10.

Holders who believed they were keeping dollars lost 90%. Without reserves that can be redeemed, the word stable was only a promise.

Common mistakes

"Stablecoins can't lose value." They can, if the backing fails.
Buying small coins because they look cheap. A low price per coin says nothing about value.
Ignoring who issues a token. Many tokens depend on a single team.
Chasing high interest on stablecoins. High yields often signal hidden risk.

The takeaway

Altcoins run their own blockchains, tokens live on others, and stablecoins aim for a fixed value. That aim can fail if the backing is weak.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the type whose value depends on reserves or a mechanism holding it at a fixed price.

Tap the chart.

A stablecoin aims to track a currency such as the dollar. If its backing fails, it can lose that link.
2What happened to the TerraUSD stablecoin in May 2022, according to the SEC?

TerraUSD relied on an algorithm, not on full reserves. When confidence broke, it lost its dollar link.
3Under the EU's MiCA rules, what is a stablecoin tied to one official currency called?

MiCA distinguishes e-money tokens, tied to one official currency, from asset-referenced tokens tied to other assets or baskets.
4What is a token?

Many tokens run on Ethereum or similar chains instead of their own blockchain.

of 4 correct.