Tier 2 · Essentials · Crypto · Module CR.1
Altcoins and stablecoins
What altcoins are, why most are riskier and less liquid than Bitcoin, how the major types of stablecoins keep their peg — and the ways each can fail.
Lesson 2 of 2 · 5 min read
Beyond Bitcoin and Ethereum there are thousands of other crypto assets. Most are altcoins — independent tokens with their own networks or uses — and a vital few are stablecoins, designed to hold a steady value and act as the dollars of the crypto economy. Altcoins offer big moves and big risks; stablecoins offer stability until, occasionally, they don't. Knowing the difference is basic crypto risk management.
What you'll learn
- What altcoins are and the main categories
- Why altcoins are typically more volatile and less liquid than BTC and ETH
- How to assess an altcoin's liquidity before trading it
- The three main types of stablecoins and how each holds its peg
- How stablecoins can fail — and what it means for you
1. Altcoins
"Altcoin" means any crypto asset other than Bitcoin (many traders also exclude Ethereum). Broad categories include:
| Category | Examples of what they do |
|---|---|
| Smart-contract platforms | Compete with Ethereum to run applications |
| DeFi tokens | Govern or share in decentralised exchanges and lending protocols |
| Infrastructure | Oracles, storage, scaling networks |
| Exchange tokens | Issued by exchanges, often with fee discounts |
| Meme coins | Driven almost entirely by community attention and speculation |
Why altcoins are riskier
- Lower liquidity — thinner order books mean bigger slippage and larger gaps.
- Higher beta — when Bitcoin falls 10%, many altcoins fall 20% or more.
- Concentrated ownership — a few large holders or early investors can move the price.
- Token unlocks and emissions — new supply can hit the market on a schedule (see Tokenomics and regulation).
- Survival risk — many altcoins from past cycles have lost most or all of their value.
2. Checking liquidity before trading
Before trading any altcoin, check:
- 24-hour trading volume on the exchange you'll use — not only aggregated across all exchanges.
- Order book depth — how much can be bought or sold within 1–2% of the current price?
- Spread at the time of day you'll trade.
- Where it trades — a coin listed only on small exchanges carries extra risk.
Worked example
(Illustrative.) You want to buy $5,000 of a small altcoin. Order book depth within 2% of the price is only $8,000 on the ask side. Your order would consume most of that depth — you could pay well over 1% above the quoted price just to get filled, and exiting in a panic would be worse. A smaller position, or a limit order, is the sensible response (see Spread, slippage, liquidity).
3. Stablecoins
A stablecoin aims to keep a fixed value — usually $1. Traders use them to park funds between trades, move money between exchanges, and quote prices (for example BTC/USDT).
| Type | How the peg is maintained | Main risk |
|---|---|---|
| Fiat-backed (e.g. USDT, USDC) | Issuer holds reserves such as cash and short-term government securities; tokens can be redeemed for dollars | Quality and transparency of reserves; the issuer's banking partners; regulatory action |
| Crypto-collateralised (e.g. DAI) | Backed by more crypto than the stablecoins issued (over-collateralisation) | A sharp crash in the collateral; smart-contract risk |
| Algorithmic | Relies on market incentives and a sister token, with little or no hard collateral | Can collapse in a "death spiral" when confidence breaks |
4. How stablecoins fail
De-pegging happens when a stablecoin trades meaningfully away from $1:
- In May 2022, the algorithmic stablecoin TerraUSD (UST) lost its peg and collapsed, wiping out tens of billions of dollars of value.
- In March 2023, USDC briefly traded well below $1 after it emerged that part of its reserves were held at Silicon Valley Bank, which had failed. It recovered once the reserves were confirmed safe.
Lessons for traders:
- "Stable" doesn't mean risk-free. Understand the backing of any stablecoin you hold.
- Don't keep all funds in a single stablecoin or on a single exchange.
- A de-peg can hit exactly when markets are already in stress.
Common beginner mistakes
- Buying low-liquidity altcoins in size, then being unable to exit.
- Counting several altcoins as diversification.
- Chasing meme coins after they've already surged.
- Assuming all stablecoins are equally safe.
- Ignoring de-peg risk during market stress.
Key terms
| Term | Meaning |
|---|---|
| Altcoin | Any crypto asset other than Bitcoin |
| Beta | How much an asset tends to move relative to a benchmark (here, Bitcoin) |
| Order book depth | The amount available to buy or sell near the current price |
| Stablecoin | A token designed to hold a fixed value, usually $1 |
| Fiat-backed | Backed by reserves of cash and cash-like assets |
| Over-collateralised | Backed by more collateral than the value issued |
| De-peg | A stablecoin trading away from its target value |
Practice
- Pick an altcoin you're interested in. Record its 24-hour volume and order-book depth within 2% on your exchange.
- Compare its largest daily moves over the past three months with Bitcoin's.
- Read the reserve report (attestation) for one major fiat-backed stablecoin. What does it hold?
- Write a rule for the maximum position size you'll take in any altcoin, based on its liquidity.
Quick recap
- Altcoins are generally less liquid, more volatile, and higher-risk than BTC and ETH.
- Check volume, depth, and spread on your exchange before trading any altcoin.
- Stablecoins are fiat-backed, crypto-collateralised, or algorithmic — each with different risks.
- Stablecoins can de-peg, as UST (collapse) and USDC (temporary) showed.
- Spread stablecoin and exchange risk; never assume "stable" means safe.
Educational content only — not financial advice. Trading involves substantial risk of loss. Practise on a demo account before risking real money.
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