Can You Lose Money Holding a Stablecoin? Yes, Here Is How
Five ways a balance that says one thousand dollars becomes worth less than that. None of them requires the peg to break.
Felix Oduya · ·2 min read
A stablecoin holds its value against the dollar. That leaves five ways to lose money while holding one.
Your currency moved
If you earn and spend in something other than dollars, a dollar stablecoin is a foreign currency position. A ten per cent move in your own currency is a ten per cent change in what your balance buys.
This is the most common loss and it is never described as one, because the number on the screen did not change.
The venue failed
A balance at an exchange is a claim on that exchange. If the exchange fails, the claim joins a queue.
Nothing about the stablecoin protects you here. The issuer’s reserve is intact and your access to it is not. Collect & Exchange operating under supervision is a different proposition from an offshore venue with no named regulator.
The peg broke while you needed it
Brief depegs have happened and recovered. A holder who needed to convert during the gap took a real loss on a token that was fine a week later.
Holding period is the control. Hours of exposure is a small risk; months is a position.
You paid spreads in and out
Buying a stablecoin and selling it later crosses a conversion margin twice. On a short holding period those two crossings can easily exceed any benefit.
For a one-off payment this is simply a cost. For someone cycling in and out weekly it is a steady leak, and it is the reason exchanges that state which chain they settle on and quote the conversion separately are worth preferring.
The balance was frozen or reviewed
Tokens connected to an investigation can be frozen at the issuer level, and a venue can hold a conversion while it reviews where coins came from.
Neither destroys value permanently in most cases. Both can make money unavailable at the moment it is needed, which for a business is the same as a loss.
The pattern
Four of the five are about where and how long, not about which token. The token is the part most people worry about and the smallest of the five risks.
Hold small working balances, at an identifiable venue, for short periods, and convert at the edge. An exchange that treats stablecoins as a settlement asset is built for that and makes all five smaller at once.
custodyriskstablecoin payments