Stablecoins are the rails; bridges are the tunnels — and both are attack surfaces.
What you will learn
Explain the three types of stablecoins
Understand bridge mechanics and risk
Recognize why these are the most-hacked parts of crypto
Atomic settlement
Atomic settlement
Cross-chain records
Cross-chain records
Three kinds of stablecoins
Fiat-collateralized (USDC, USDT): backed by real dollars in a bank. Crypto-collateralized (DAI): backed by over-collateralized crypto. Algorithmic (UST, now infamous): backed by nothing but a mechanism — which failed spectacularly. Each has different trust assumptions.
💡 The UST collapse
Terra's UST was 'stable' until it wasn't: when confidence broke, the algorithmic mechanism couldn't hold the peg, and $40B+ evaporated in days. The lesson: a stablecoin is only as stable as its backing. Nothing 'algorithmic' can substitute for real collateral.
Why stablecoins matter
Stablecoins are the unit of account for DeFi — the dollars that trading pairs, lending, and yield are priced in. They let people move in and out of volatile crypto without touching a bank. Their stability is the foundation everything else stands on.
What a bridge does
A bridge moves assets between blockchains (e.g., ETH → a Layer 2 or another L1). It locks the asset on the source chain and mints a wrapped version on the destination. The wrapped token is an IOU — its value depends on the bridge's ability to redeem it.
💡 Why bridges get hacked
Bridges hold enormous value in a single contract — billions of dollars. One bug in the lock/unlock logic = a hacker drains it all (the Wormhole, Ronin, and Nomad hacks stole billions combined). Bridges are the single most concentrated risk in crypto.
Trust assumptions, clearly
Every stablecoin and bridge has a trust assumption: a bank (USDC), over-collateralization (DAI), or a contract (bridges). The disciplined investor names that assumption explicitly before touching the asset — because when the assumption breaks, so does the peg or the bridge.
❓ Quick check
Which stablecoin type is backed by nothing but a mechanism (and famously failed)?
A) Fiat-collateralized
B) Crypto-collateralized
C) Algorithmic
D) Gold-backed
Algorithmic — UST failed.
(Knowledge check — full exam is next)
Key takeaways
Stablecoins: fiat-backed, crypto-backed, or algorithmic (riskiest)
Bridges lock+mint and concentrate risk in one contract
Name the trust assumption before you touch any stablecoin or bridge
📝 Weekly Exam — pass with 80% to unlock next week
10 questions. Review the Deep Dive and courses before attempting.
1. USDC is a ___ stablecoin:
Backed by dollars in a bank.
2. DAI is a ___ stablecoin:
Backed by crypto collateral.
3. UST's collapse taught that:
Backing matters.
4. A bridge works by:
Lock + mint wrapped token.
5. Bridges are the most-hacked crypto infra because:
Concentrated value = big target.
6. A wrapped token is:
It's a claim on the locked asset.
7. Stablecoins are important to DeFi because:
The stable pricing unit.
8. The disciplined approach to stablecoins is:
Know what backs it.
9. If a bridge is exploited, the wrapped tokens on the destination chain:
The IOU becomes worthless.
10. The safest stablecoin design is generally:
Real collateral beats mechanisms.
Your score: —
🛠 Weekly Project
Compare three stablecoins' backing.
1
Pick USDC, DAI, and one other stablecoin.
2
For each, write down: what backs it, and the trust assumption.
3
Note any de-peg history and how it was handled.
4
Write 2 sentences on which you'd trust most for long-term holdings and why.