Stablecoins

Stablecoins are cryptocurrencies designed to keep a stable value, usually one US dollar. They let traders move money between exchanges quickly, park funds without leaving crypto, settle trades on decentralised platforms and send dollars across borders. The largest, Tether (USDT) and USD Coin (USDC), together have well over $150 billion in circulation. Stablecoins are the cash of the crypto economy, but how safely they hold their peg depends entirely on what backs them.

Types of stablecoins#

How fiat backed stablecoins work#

1. A customer sends $1 million to the issuer.
2. The issuer mints 1 million stablecoins and holds $1 million in reserves.
3. The customer can redeem stablecoins for dollars, and the issuer burns them.

Arbitrage keeps the price near $1: if USDC trades at $0.99, approved customers buy it and redeem for $1; if it trades at $1.01, they mint new coins and sell them.

When stablecoins break#

Regulation#

Regulators have moved to set rules for stablecoins:

• European Union: the Markets in Crypto Assets regulation (MiCA) set reserve and licensing requirements, in force for stablecoins from mid 2024.
• United States: the GENIUS Act, signed in July 2025, created a federal framework for payment stablecoins, requiring full reserves in cash and short term Treasuries and regular disclosures.

How traders use stablecoins#

Risks to understand#

• Reserve risk: are the reserves real, liquid and fully backing the coins? Look for attestations and audits.
• Issuer and banking risk: reserves held at failing banks, as in the USDC case.
• Freezes and blacklists: issuers can freeze coins at specific addresses, often at the request of law enforcement.
• Smart contract and bridge risk for stablecoins on multiple chains. See Bridge and Smart Contract Risk.
• Depeg risk in stress, especially for algorithmic and synthetic designs.
• Counterparty risk at exchanges holding your stablecoins. See Market, Credit and Counterparty Risk.

Frequently asked questions#

What is a stablecoin?#

A cryptocurrency designed to keep a stable value, usually $1, through reserves, crypto collateral or algorithms.

Are stablecoins safe?#

It depends on the design and issuer. Fully reserved, regulated stablecoins are generally safer than algorithmic ones, but all carry some risk of depegging, freezes or issuer failure.

What is the difference between USDT and USDC?#

Both are dollar stablecoins backed by reserves. They are issued by different companies, Tether and Circle, with different disclosure practices and regulatory histories.

Next, learn where crypto trades in Centralized vs Decentralized Exchanges.