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Education only · not financial, tax or legal adviceCanadian facts checked 2026-10-31 · a MITEY site
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Infographic

Three ways to build a stablecoin, and how each can break

Design determines failure mode. In Canada, no stablecoin is CDIC-insured, and the federal Stablecoin Act was enacted on 2026-03-26 but was not in force as of 2026-10-30.

Mitey the yeti weighing a coin in each paw, with a token coin
Mitey says: Every number in this picture is worked out in the notes below it.
Stablecoin designsFiat-backedReserves held byan issuerRedeem at parHow it breaksReserve or issuerfailureCrypto-backedOver-collateralizedsmart-contract loansLiquidationsHow it breaksCollateral crashoutruns liquidationAlgorithmicIncentives and asister tokenArbitrage loopHow it breaksConfidence spiral(UST, May 2022)Canada: no CDIC cover · Stablecoin Act not in force (2026-10-30)
Three ways to build a stablecoin, and how each can break. Design determines failure mode. In Canada, no stablecoin is CDIC-insured, and the federal Stablecoin Act was enacted on 2026-03-26 but was not in force as of 2026-10-30.

Reading the infographic

  • Fiat-backed: an issuer holds cash and short-term assets and redeems at par. Breaks on reserve doubts, issuer failure or redemption limits.
  • Crypto-collateralized: over-collateralized loans in a smart contract. Breaks when collateral crashes faster than liquidations can keep up.
  • Algorithmic: incentives and a sister token hold the peg. Breaks when confidence falls and the mechanism feeds on itself, as TerraUSD (UST) did in May 2022.
  • Canada: platforms may only offer stablecoins that meet CSA terms (since 2024-12-31); the Stablecoin Act's regulations were proposed on 2026-10-24.

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Education only. Nothing on this page is financial, investment, tax or legal advice, or a recommendation to buy, sell, stake, lend or borrow any crypto-asset. Crypto-assets can lose some or all of their value and are not covered by CDIC. Canadian rules change: check the dated sources above and talk to a qualified professional about your situation. Full disclaimer.