1) What is “Crypto” (in one slide)?
- Cryptoasset = a digital token on a distributed ledger (blockchain). Some aim to be money (e.g., Bitcoin); others power apps, games, or financial rails.
- Blockchain = shared database that many computers maintain. New entries are accepted via a consensus rule (e.g., proof-of-work or proof-of-stake).
- Why people care: open access, programmable payments/finance, 24/7 settlement, cross-border speed, new business models — with risks (volatility, hacks, fraud, leverage).
Families (very simplified)
Type | Examples | What for? |
---|---|---|
Payment/Store of value | Bitcoin | Peer-to-peer value transfer, scarce supply narrative |
Smart-contract platforms | Ethereum, Solana | Programmable apps/DeFi/NFTs |
Stablecoins | USDC, USDT | Dollar-like token for trading and payments |
2) Keys, Wallets & Security — “Not your keys, not your coins.”
Public vs. private key
- Public key / address — where others can send assets (like an email address).
- Private key — proves you can move the asset (like the password). Never share it.
- Signatures — you sign a transaction with your private key; the network verifies with your public key.
Wallet types
- Custodial (exchange holds keys) — easier UX, platform risk.
- Self-custody (you hold keys) — more control, more responsibility.
- Hardware wallets — keys in a device that stays offline; phish-resistant.
2b) Self-Custody & Safety — No helpdesk on-chain
Core realities
- Finality: most crypto transfers are irreversible.
- No bank recourse: losing a private key / seed phrase usually means losing the asset.
- Attack surface: phishing, fake apps, malware, SIM-swap, malicious smart contracts.
Protection checklist
- Hardware wallet for meaningful balances; keep the seed phrase offline (never cloud/email).
- Multisig or social recovery for shared/treasury funds.
- 2FA + allow-listing if using custodial exchanges; withdraw to known addresses only.
- Verify contract addresses on the issuer’s official site; avoid random links.
- Test sends first; keep software/firmware updated; beware airdrops and “support” DMs.
- Stablecoin specifics: read redemption terms, issuer disclosures, and proof-of-reserves/attestations.
3) Bitcoin — Mining, Issuance & Supply
How mining works (proof-of-work)
- Miners bundle transactions into a block and compete to find a valid hash. First to solve earns block reward + fees.
- Issuance halves ~every 4 years (“halving”) → a capped supply of 21 million BTC by design.
- Costs: electricity + hardware → economic floor for large miners.
Why people hold BTC
- Scarcity narrative (fixed cap), portability, censorship-resistant settlement.
- But: price volatility, regulatory shifts, and technological risks.
3b) Bitcoin vs. USD Stablecoins — What’s the difference?
Dimension | Bitcoin (BTC) | USD Stablecoins (USDT/USDC/…) |
---|---|---|
Goal / Design | Decentralized, scarce digital asset; peer-to-peer cash vision; “digital gold” narrative. | Track $1.00; payment/settlement rail with dollar-like price. |
Price behavior | Free-floating, volatile. | Pegged to $1 via reserves + redemption; low volatility if reserves/liquidity hold. |
Backing | No issuer; value comes from consensus & scarcity (code/economics). | Fiat-backed (cash/T-bills/MMFs) or crypto-collateralized; issuer promises redemption. |
Supply policy | Capped 21M; issuance halves ~4y (proof-of-work). | Elastic: minted/burned vs. dollars deposited/redeemed with issuer. |
Who runs it? | Open network of miners/nodes; no company in charge. | Issuer/company or DAO + custodians; subject to legal terms and regulators. |
Security base | Proof-of-work hashpower; highly censorship-resistant. | Trust in issuer reserves, banking partners, and smart-contract design. |
Best use cases | Long-term holding, censorship-resistant transfers, diversification thesis. | Payments, trading collateral, 24/7 settlement, cross-border dollar rails. |
Key risks | Volatility; regulatory climate; custody mistakes. | Reserve quality/liquidity; de-peg/run risk; counterparty/legal risk; smart-contract risk. |
M1/M2 linkage | Buying BTC with deposits reduces bank deposits; not counted in M1/M2. | Tokens not in M1/M2; deposits can shift to issuer reserves (T-bills/MMFs or bank deposits). |
Why many people like Bitcoin
- Programmed scarcity (21M cap) and predictable issuance.
- Neutral, permissionless network with global settlement.
- Self-custody possible; no reliance on an issuer.
Why many prefer stablecoins for payments
- Dollar price stability for invoices, payroll, and trading.
- Fast settlement across exchanges and borders; composable with crypto apps.
- Familiar accounting (denominated in $).
Bitcoin Games
Tip: If your LMS blocks iframes, keep the buttons above so students can open the games in a new tab.
🎥 Quick explainer on Stablecoins — watch this first
4) Stablecoins — What, Why, How
What is a stablecoin?
A token designed to track a reference (usually the U.S. dollar). Users like the “crypto-speed” of transfers with less price volatility.
Why people use them
- Fast, low-friction settlement across exchanges and borders.
- Bridge between traditional dollars and crypto apps.
- Sometimes higher yield on reserve assets (indirectly, via issuers’ holdings).
How they keep the peg (models)
Model | Backing | Notes |
---|---|---|
Fiat-backed | Cash, bank deposits, T-bills, MMFs | Redeemable $1 in/$1 out with the issuer. Needs audits, liquidity, risk controls. |
Crypto-collateralized | On-chain collateral (e.g., ETH) | Over-collateralized; can be volatile; uses smart-contract rules/liquidations. |
Algorithmic | Rules/market incentives | No (or partial) collateral; historically fragile under stress. |
4a) Who Makes Stablecoins & Who Profits?
Who creates them?
- Fiat-backed issuers (companies like Tether, Circle, Paxos, etc.) mint/burn tokens against dollars (or T-bill/MMF cash) held with banks/custodians.
- Crypto-collateralized protocols (e.g., MakerDAO/DAI) mint tokens against on-chain collateral, with over-collateralization + liquidations.
- Payment brands (e.g., PayPal’s PYUSD via Paxos) integrate stablecoins into existing user networks.
How do issuers earn money?
- Interest on reserves (“the float”): cash/T-bill/MMF income while tokens circulate.
- Fees: issuance/redemption, network/spread, institutional services.
- Scale effects: larger supply → larger interest income (minus hedging/custody/audit costs).
Do early inventors get rich?
They can, but via equity in the issuing company or protocol tokens, not by printing money. The economic value comes from trust, compliance, banking rails, distribution and risk management.
Student-life lens
- Using a top-tier USD stablecoin for tuition transfers or international family support can be cheaper/faster—but read the issuer’s terms and your country’s rules.
- For campus clubs/treasuries: prefer multisig, publish the receiving address, and keep a fiat runway in a bank account.
4b) Can I Create a Stablecoin & Get People to Use It?
Reality checklist (fiat-backed)
- Form a compliant entity; hire counsel for KYC/AML, money transmitter/licensing requirements in relevant jurisdictions.
- Secure banking & custodians willing to hold reserves (cash/T-bills/MMFs).
- Write/audit the smart contracts (mint/burn/blacklist/upgrade policies).
- Publish frequent attestations (and ideally audits) about reserves.
- Line up market makers, exchanges, and wallets for distribution/liquidity.
- Design redemption SLAs, fees, and playbooks for stress events.
Crypto-collateral model (on-chain)
- Over-collateralize with liquid assets; build oracle feeds; implement liquidation engines.
- Expect higher capital costs and potential de-peg during stress; governance/risk is everything.
Will anyone use mine?
- People adopt the coin that has the best redemption, transparency, and integrations.
- Payments is a network-effects game: merchants, wallets, and exchanges matter more than code elegance.
4c) Popular USD Stablecoins (high level)
Token | Type | Issuer/Manager | Typical Reserves | Redemption | Notes |
---|---|---|---|---|---|
USDT | Fiat-backed | Tether | Cash, T-bills, MMFs (mix evolves; see attestations) | KYC’d customers via issuer | Largest by market cap; widely used on exchanges. |
USDC | Fiat-backed | Circle (Centre) | Cash & short-dated U.S. Treasuries (segregated accounts/funds) | KYC’d customers via issuer | Heavy institutional/FinTech integrations. |
DAI | Crypto-collateralized (hybrid) | MakerDAO | On-chain collateral + real-world assets (indirect T-bill exposure via custodial wrappers) | On-chain mint/redeem mechanisms | Over-collateralized model with liquidations. |
PYUSD | Fiat-backed | PayPal (issued by Paxos) | Cash & U.S. Treasuries | PayPal/Paxos per terms | Payments-focused integrations. |
USDP / GUSD | Fiat-backed | Paxos / Gemini | Cash & U.S. Treasuries | Issuer redemption for KYC’d users | Smaller, regulated-issuer models. |
USDT Peg History (live)
UST (TerraClassicUSD) — Post-Peg Price (live)
UST (TerraUSD) Peg Break — What students should know
UST was an algorithmic “stablecoin” that tried to hold $1 using mint/burn with LUNA — no hard dollar collateral.
- What happened (May 2022): UST lost its $1 peg and crashed to cents; LUNA supply hyper-inflated during the attempted defense.
- Scale of loss: Tens of billions in market value were wiped out across UST + LUNA; many retail holders suffered near-total losses.
- Why it failed: Confidence shock → redemptions → reflexive “death spiral.” With no cash/T-bill reserves, there was nothing solid to meet outflows.
What happened to LUNA?
Terra used an algorithmic peg: traders could swap 1 UST ↔ $1 of LUNA. When UST lost its peg in May 2022, redemptions minted huge amounts of LUNA, crashing its price and triggering a death spiral.
- UST de-pegged → fell from $1 to cents.
- LUNA hyper-inflated (supply exploded) → price collapsed to near-zero.
- Chain pauses; many exchanges suspended or delisted trading.
5) Stablecoins & the Money Supply (intuition)
Are stablecoins in M1/M2?
- Generally, no. U.S. monetary aggregates count currency & deposits held by the public; on-chain tokens are not included.
- But where reserves sit matters: if customers swap bank deposits for a dollar stablecoin and the issuer buys T-bills or institutional MMFs, bank deposits can fall (affecting M2 composition).
- Redemptions reverse the flow: stablecoins destroyed → dollars returned to bank deposits.
Simple flow examples
- Buy USDC with checking → your deposit ↓; issuer reserves ↑ (often in T-bills/MMFs). M1/M2 can dip if deposits leave retail buckets.
- Redeem USDC → token burned; deposit back to bank → M1/M2 can rise (deposits up).
- Use USDC cross-border → may not change U.S. aggregates directly but increases dollar rails abroad.
5a) Stablecoin Simulator + Guided Lesson
5b) Interactive — Stablecoin Flow & Aggregates
Pick an activity on the left. Arrows show a directional change (Up/Down/—) in U.S. aggregates based on a stylized balance-sheet flow.
Activities
Result (arrows reflect M1/M2 logic)
MB
M1
M2
5c) Policy Snapshot — U.S. & Global (high level)
United States
- Stablecoins: Policymakers emphasize payment-system and reserve-asset safety (cash/T-bills), audits/disclosures, and anti-money-laundering (AML) obligations.
- Oversight: Banking regulators (Fed/FDIC/OCC) + market regulators (SEC/CFTC) + Treasury/FinCEN for AML; proposals for federal stablecoin frameworks continue.
- Political views: Some leaders advocate crypto innovation/jobs and U.S. dollar leadership via regulated stablecoins; others worry about consumer/investor protection and financial stability.
International quick tour
Jurisdiction | Status (very brief) |
---|---|
EU (MiCA) | Comprehensive regime for crypto-asset & stablecoin issuers and service providers. |
UK | Phased rules; prudential & payments focus for fiat-backed stablecoins. |
Singapore (MAS) | Stablecoin framework focused on reserve quality, redemption, disclosures. |
Hong Kong | Licensing for virtual-asset platforms; stablecoin regime in development. |
China | e-CNY pilots (CBDC); private crypto trading restricted. |
6) CBDC (Central Bank Digital Cash) vs. Dollar Stablecoins — Why/Why not?
Fed & CBDC (very short)
- The Fed has explored a U.S. CBDC and says it would require clear authorization and broad public support.
- Design trade-offs: privacy, programmability, bank intermediation, resilience, and cybersecurity.
Why some U.S. voices back stablecoins (and not a CBDC)
- Private-sector speed & global reach without creating a direct Fed-to-consumer product.
- Dollar soft power: regulated dollar tokens abroad can expand dollar rails.
- CBDC concerns: government wallet/privacy worries; potential crowd-out of bank deposits.
7) De-dollarization: Does crypto help or hurt the dollar?
Two forces at once
- Dollar-pegged stablecoins abroad can reinforce dollar usage (if most tokens are USD-pegged and backed by U.S. assets like T-bills).
- Non-USD rails (other fiat-pegs, CBDCs, or commodity-pegs) could diversify away from the dollar in some corridors.
8) Good Official Links (reference)
United States
9) Macro: Does a Stablecoin Raise Inflation or M2?
Money aggregates mechanics (U.S.)
- Buying a fiat-backed stablecoin with your bank deposit reduces deposits at your bank; the issuer places reserves in bank deposits or T-bills/MMFs.
- Tokens themselves are not in M1/M2. Reserves may sit outside M1 (e.g., T-bills/MMFs). Net, it’s a composition shift within dollar claims.
- So stablecoins don’t “print new dollars”; inflation depends on macro policy/credit/velocity, not the token wrapper.
Banking impact
- Large shifts into stablecoins/MMFs can drain bank deposits (“disintermediation”), nudging banks to pay more on deposits or rely more on wholesale funding.
- Issuers holding T-bills earn interest (float). That income used to accrue to banks; now some accrues to issuers and, indirectly, to users via lower fees.
De-dollarization & dollarization
- Outside the U.S., USD stablecoins can increase dollar usage (informal dollarization) by making $ rails accessible on phones.
- A credible euro/other stablecoin could chip away at USD use at the margin, but the dollar’s network (trade, finance, commodities) is large.
10) Global Competition & Policy Snapshot
U.S.
- Regulatory stance is evolving; prudential standards focus on reserves, disclosures, and redemption.
- The Fed has expressed interest in safe, well-regulated dollar tokens but has not launched a retail CBDC; private stablecoins fill part of the gap.
Europe
- EU’s MiCA framework creates licensing and reserve/white-paper rules for “e-money tokens.” Expect more EUR-stablecoins on compliant rails.
- Could they take U.S. market share? Possibly in EU venues and trade with euro invoices, but USD network effects remain strong globally.
Other regions
- Some countries encourage USD stablecoins for remittances; others restrict them.
- Many central banks test CBDCs; a U.S. “digital dollar” is debated, but private stablecoins currently dominate crypto-dollar payments.
Bitcoin is decentralized & scarce (21M cap) with no issuer—good for censorship-resistant saving, but volatile. A “digital dollar” (CBDC or stablecoin) is a dollar wrapper—price-stable for payments, but depends on the issuer/regulator and has different privacy/censorship trade-offs.
Politics & headlines (plain English)
- Supporters argue stablecoins keep the dollar competitive on the internet and can reduce fees.
- Opponents worry about runs, consumer protection, and bank funding. A retail CBDC is controversial (privacy/government reach); some politicians back private stablecoins instead.
11) Student Q&A — Stablecoins & Crypto
Practical • Plain-English • Not tax/financial adviceOn-chain, you’re an address (e.g., 0x123…
) — it does not display your name, age, SSN, or driver’s license.
- On-ramps/off-ramps (exchanges, PayPal): usually require KYC (they know your real identity off-chain).
- Linkability: once funds move from a KYC’d account to your wallet, analytics can often link that address back to you.
- Best practice: use a dedicated wallet for personal vs. club/treasury funds; don’t leak your address publicly unless you mean to.
- By default, no access: your employer can’t see your wallet unless you give them the address or used a work-linked wallet/email.
- Public ledger: if they do have your address, all past/future transactions are visible on a block explorer.
- Law enforcement: with proper legal process, agencies can request data from exchanges and use blockchain analytics.
Don’t. The blockchain is a permanent public record. “Crypto” does not make illegal activity safe or invisible.
- Underage alcohol / restricted goods: still illegal; merchants often require ID regardless of payment method.
- Traceability: wallets involved in illicit activity are routinely flagged; exchanges can freeze/deny service.
- School/employment risk: flagged wallets can create reputational/background-check problems.
Safety depends on reserves, transparency, redemption, and jurisdiction.
- If an issuer fails: the token can trade below $1 or become illiquid. You may be stuck until resolution.
- Reduce risk: keep transactional balances small; prefer well-disclosed reserves (cash/T-bills), frequent attestations, and clear 1:1 redemption terms.
- Clubs/treasuries: diversify across issuers or keep a fiat runway in a bank; use multisig custody.
Convenience, not growth. A fiat-backed USD stablecoin aims to stay near $1. Expected price return ≈ $0 (before any yield programs).
- Good use: moving $ quickly, splitting rent, remittances, on/off-ramping into DeFi/exchanges.
- Weak use: “investing” to beat inflation (it won’t, by price alone).
Checklist:
- Backing: cash/T-bills/MMFs at reputable custodians (disclosed).
- Attestations: frequent, from a recognized auditor; clear reserve breakdown.
- Redemption: who can redeem and how fast? Fees? KYC terms?
- Smart contract: official contract address; audits; clear blacklist/upgrade policy.
- Liquidity: market cap, depth on major venues; supported wallets/payments.
- Jurisdiction & compliance that fit your needs (school/state/country rules).
Legit sources: interest from T-bills/MMFs on reserves, or transparent lending with risk controls. High APYs usually mean more risk (counterparty/market/smart-contract). No free lunch.
- Check issuer comms & attestation; confirm no smart-contract or banking issue.
- Assess redemption: if you qualify, redeem 1:1; otherwise weigh market price vs. risk.
- Manage size: keep transactional balances small; diversify issuer risk if needed.
- Buy with USD: generally not a taxable event.
- Spend/swap/dispose: usually a capital gain/loss vs. your cost basis — even between stablecoins.
- Yield/interest/rewards: typically ordinary income when received; later disposals can trigger gains/losses too.
- Records: keep dates, amounts, TX hashes; some platforms issue tax forms.
- Self-custody: you control keys (seed phrase). Pros: sovereignty. Cons: lose the phrase = funds likely gone. Use hardware wallets for larger amounts; never photo/cloud your seed.
- Custodial/exchange: easy recovery/2FA; Cons: platform/counterparty risk; KYC; withdrawal holds.
- Clubs/treasuries: prefer multisig with rotating officers and a written recovery policy.
Buying a fiat-backed stablecoin typically shifts dollars from bank deposits to issuer reserves (cash/T-bills/MMFs). That’s mostly a composition shift, not new dollars. Inflation is driven by macro policy, credit, and velocity — not the token wrapper.
USD stablecoins often extend the dollar’s reach by making $ payments accessible on phones worldwide. Competing EUR/other stablecoins may win share in their regions, but the dollar’s network (trade/finance) remains large.
- Bitcoin: decentralized, fixed supply (21M), censorship-resistant settlement; volatile — seen as a long-horizon/hedge asset by some.
- Stablecoins: price-stable, issuer-dependent; great for payments and parking cash, not for appreciation.
- CBDC (digital dollar): could offer safe, universal access but raises privacy and design questions, and may affect bank funding.
- Private stablecoins: can move faster and innovate, but need strong reserves, disclosures, and redemption standards to avoid run risk.
12) Quick Quizzes — Session 4
True/False • Auto-graded⛏️ Session 4 — Bitcoin Mining & Supply (Quiz 1)
Covers PoW mechanism, difficulty, block rewards & fees, halving schedule, and the 21M cap.
Open Quiz 1🪙 Session 4 — Stablecoins & Money Supply (Quiz 2)
Covers fiat-backed vs. crypto-collateralized models, reserves/redemption, peg risks, AML/KYC, and directional M1/M2 effects.
Open Quiz 213) Homework
Part A — Short Essay (≤200 words)
Prompt:
Stablecoins are designed to keep their value close to $1.00. They move quickly without using a bank,
but sometimes face risks (like de-pegging or losing trust). Write a short essay answering:
- Do you think stablecoins are useful for students (payments, shopping, or sending money abroad)?
- Would you trust using a stablecoin instead of a bank account or payment app? Why or why not?
- What risks do you see (volatility, hacks, fraud, regulation)?
Part B — Hands-on: Club Stablecoin (testnet)
- Get test ETH on Sepolia
- Install MetaMask → add Sepolia network (it’s built-in → choose it from the network list).
- Use a public Sepolia faucet to get test ETH (search “Sepolia faucet”).
- Open Remix & paste minimal token
- Go to remix.ethereum.org → “+” New File →
ClubStablecoin.sol
→ paste the contract below. - In the Solidity compiler, choose version 0.8.20 (or any ^0.8.x) and compile.
// SPDX-License-Identifier: MIT pragma solidity ^0.8.20; /** * Club Stablecoin (simple ERC-20 demo) * - Owner (deployer) can mint and change owner. * - Anyone can transfer. * - Anyone can burn their own tokens. * - Decimals = 6 (dollar-like: 1.000000) * NOTE: Testnet demo only. Not audited. No fees/pausing/blacklists. */ contract ClubStablecoin { string public name; string public symbol; uint8 public immutable decimals; uint256 public totalSupply; mapping(address => uint256) private _balances; mapping(address => mapping(address => uint256)) private _allowances; address public owner; modifier onlyOwner(){ require(msg.sender == owner, "not owner"); _; } event Transfer(address indexed from, address indexed to, uint256 amount); event Approval(address indexed owner, address indexed spender, uint256 amount); event OwnershipTransferred(address indexed oldOwner, address indexed newOwner); constructor(string memory _name, string memory _symbol, uint8 _decimals){ owner = msg.sender; emit OwnershipTransferred(address(0), msg.sender); name = _name; symbol = _symbol; decimals = _decimals; // e.g., 6 for $-style 1.000000 } function balanceOf(address a) public view returns (uint256) { return _balances[a]; } function allowance(address a, address s) public view returns (uint256) { return _allowances[a][s]; } function transfer(address to, uint256 amount) public returns (bool) { _transfer(msg.sender, to, amount); return true; } function approve(address spender, uint256 amount) public returns (bool) { _approve(msg.sender, spender, amount); return true; } function transferFrom(address from, address to, uint256 amount) public returns (bool) { uint256 allowed = _allowances[from][msg.sender]; require(allowed >= amount, "insufficient allowance"); if (allowed != type(uint256).max) { _allowances[from][msg.sender] = allowed - amount; emit Approval(from, msg.sender, _allowances[from][msg.sender]); } _transfer(from, to, amount); return true; } function mint(address to, uint256 amount) public onlyOwner { require(to != address(0), "mint to zero"); totalSupply += amount; _balances[to] += amount; emit Transfer(address(0), to, amount); } function burn(uint256 amount) public { uint256 bal = _balances[msg.sender]; require(bal >= amount, "insufficient"); _balances[msg.sender] = bal - amount; totalSupply -= amount; emit Transfer(msg.sender, address(0), amount); } function transferOwnership(address newOwner) public onlyOwner { require(newOwner != address(0), "zero owner"); emit OwnershipTransferred(owner, newOwner); owner = newOwner; } function _transfer(address from, address to, uint256 amount) internal { require(to != address(0), "transfer to zero"); uint256 bal = _balances[from]; require(bal >= amount, "insufficient balance"); _balances[from] = bal - amount; _balances[to] += amount; emit Transfer(from, to, amount); } function _approve(address a, address s, uint256 amount) internal { require(s != address(0), "approve to zero"); _allowances[a][s] = amount; emit Approval(a, s, amount); } }
- Go to remix.ethereum.org → “+” New File →
- Deploy to Sepolia (testnet)
- In Remix → “Deploy & Run Transactions” → Environment: Injected Provider – MetaMask → network must be Sepolia.
- Constructor args:
name
:Campus Dollar
symbol
:cUSD
decimals
:6
- Click Deploy → approve in MetaMask → copy the deployed contract address.
- Mint to members
- As owner (the deployer), call
mint(<memberAddress>, 1000000)
to send 1.000000 cUSD (6 decimals) to a member. - Repeat for a few addresses (classmates/officers).
- As owner (the deployer), call
- See it in wallets
- In MetaMask (on Sepolia), “Import tokens” → paste the contract address → symbol/decimals auto-fill → add.
- Members should now see their balances and can transfer test tokens.
- Safety & scope rules (put in your README or slide)
- Testnet only. No public redeemability, no fundraising, no promises.
- Use small amounts; never share seed phrases; enable 2FA on exchange accounts used only for testnet.
- If you rotate leadership, use
transferOwnership()
to hand admin to the next treasurer (or a Safe multisig).
- Turn-in (what to submit)
- Contract address on Sepolia
- 2–4 screenshots: deployment, a mint TX, and a wallet showing balance
- 1–2 paragraphs: what worked, what confused you, and one risk you’d mitigate before using anything like this in the real world
Stablecoins: Issuance, Collateral & Redemption (read this first)
Stablecoins are tokens pegged to $1, designed for payments and transfers—not for price appreciation. Their stability comes from how they’re issued, collateralized, and redeemed.
- Issuer & Minting: A company/issuer mints tokens when dollars (or equivalent) are sent to them.
- Collateral: They hold backing assets (cash, T-bills, MMFs). Reserves ≈ tokens in circulation.
- Redemption (1:1): Authorized users can return 1 token to receive ~$1 from the issuer.
- Price peg: If market price drifts, arbitrage via mint/redeem nudges it back toward $1.
- Use-case: Fast settlement, low-friction transfers, on/off ramps—not an “investment.”
Quick example
Key risks (teach these)
- De-peg: If reserves or confidence falter, price can break from $1 temporarily.
- Liquidity: Can the issuer meet large/fast redemptions?
- Transparency: Are reserves attested/audited? What are they invested in?
- Legal/operational: Who may redeem? What are fees/limits and timelines?