Stablecoins explained for lottery players

How stablecoins stay stable

Fiat-backed stablecoins such as USDC and USDT are issued by companies that say they hold dollars and similar assets in reserve for each token. You can in principle redeem a token for a dollar with the issuer. Crypto-backed stablecoins use over-collateralised crypto and smart contracts. Algorithmic ones that rely on market incentives have failed spectacularly in the past, such as TerraUSD in 2022.

USDC and USDT compared

Both are widely used. Choose by what you hold and what the network supports.

Depegging: what it is

A depeg happens when the market price drifts away from one dollar. In March 2023, USDC fell below a dollar for a few days when the bank holding part of its reserves failed, and later recovered. Depegs can be brief or permanent, which is why stablecoin risk is not zero.

Why lotteries like stablecoins

• A $5 ticket costs about five tokens, with no guesswork.
• A prize quoted in dollars stays a dollar prize while it moves.
• Fees on low-fee networks are small.
• Accounting and tax records are simpler.

Receiving prizes in stablecoins

• Prizes are quoted in dollars. You choose the coin and network when you reply to the winner email.
• Pick a network your wallet supports and that you have used before.
• Consider moving a large prize to a cold wallet.

Reducing stablecoin risk

1. 1Do not keep large balances in a single stablecoin.
2. 2Use well-known coins from large issuers.
3. 3Keep up with news about reserves and regulation.
4. 4Hold only what you need on exchanges and hot wallets.

How to check a stablecoin's health

• Does the issuer publish regular attestations or reports on reserves?
• Is the coin listed with healthy trading volume on major exchanges?
• Has it traded close to one dollar through market stress?
• What do regulators say about the issuer in your region?

Choosing a network for your stablecoin

Because the same stablecoin exists on many networks, the network decides your fees and speed. For small payments, a low-fee network is best. For savings, many people prefer Ethereum mainnet for its security and liquidity. Match the network to the job.

Avoiding look-alike tokens

1. 1Find the token contract address on the issuer's official site.
2. 2Compare it with the address shown in your wallet.
3. 3Ignore unsolicited tokens that appear in your wallet. They are often scams.
4. 4Never approve spending of a token you do not recognise.

Example: why a stablecoin makes a $5 ticket simple

You want to buy five tickets for $25. With Bitcoin, you would need to know how much $25 is in BTC at the moment of payment, and the amount could change between starting and finishing the payment, which is why payment pages lock a rate for a short time. With USDC, $25 is simply 25 USDC. If you hold the USDC for a week before the draw, it is still worth about $25. If a prize of $450 is paid in USDC, it is still about $450 when you decide what to do with it. That predictability is the entire reason for the stablecoin in a lottery.

Habits that reduce stablecoin risk

1. 1Hold only what you plan to spend, not your savings.
2. 2Use well-known stablecoins from large, transparent issuers.
3. 3Know which network your balance is on, since the same coin exists on several.
4. 4Keep up with news about reserves and regulation.
5. 5Spread holdings across more than one asset if you hold large amounts.