Stablecoins are divided into three major types based on how they maintain price stability. Fiat-backed (USDC, USDT): backed by equivalent fiat currency or liquid asset reserves, the most intuitive and mainstream mechanism, representing over 90% of current market share. Crypto-backed (DAI): backed by over-collateralized crypto assets, decentralized but capital-inefficient. Algorithmic (like the collapsed UST): maintains its peg solely through code and incentive mechanisms with no real reserves — theoretically most decentralized, but the historical record shows near-zero survival rate under extreme stress. Understanding the differences between all three is the first step in assessing any stablecoin's risk.