A stablecoin is a cryptocurrency designed to keep a steady value, usually $1. Most are backed by cash and short-term US Treasury bills held by the company that issues them. Stablecoins let people move dollars across blockchains in seconds, any day of the week. The market has grown to roughly $300 billion, led by Tether’s USDT at about $180 billion and Circle’s USDC at about $71 billion.
The main types of stablecoins
| Type | How it holds $1 | Examples | Main risk |
|---|---|---|---|
| Fiat-backed | Cash and Treasury bills held in reserve | USDT, USDC | Issuer fails or reserves fall short |
| Crypto-backed | More crypto locked up than coins issued | DAI / USDS | Sharp crypto crash |
| Algorithmic | Code and incentives, little or no backing | TerraUSD (collapsed in 2022) | Can lose its peg entirely |
How a fiat-backed stablecoin works
- A company such as Circle receives $1 from a customer.
- It issues one USDC token on a blockchain and holds the $1 in reserve, mostly in cash and short-term Treasury bills.
- When someone redeems the token, the company burns it and sends back $1.
Because large holders can always redeem for $1, traders step in whenever the price drifts, keeping it close to the peg.
What people use stablecoins for
- Trading. Crypto traders park money in stablecoins between trades instead of cashing out to a bank.
- Payments and remittances. Sending dollars abroad can be faster and cheaper than a wire transfer.
- Access to dollars. People in countries with high inflation use them to hold a dollar-linked asset.
- DeFi. They are the main currency of decentralized finance apps. See what is DeFi.
New US rules: the GENIUS Act
The GENIUS Act, signed in July 2025, created the first US framework for payment stablecoins. Approved issuers must hold one-to-one reserves in safe assets such as cash and short-term Treasuries, publish monthly reserve reports, and cannot pay interest to holders. Tether’s main USDT token is issued offshore and largely sits outside those rules, while USDC operates under them.
The risks
- Not FDIC insured. A stablecoin is not a bank deposit.
- Depegs happen. USDC briefly fell to about 88 cents in March 2023 when some reserves were stuck at Silicon Valley Bank, before recovering.
- No interest. Under the new US rules issuers cannot pay you yield, so cash in a high-yield savings account may earn more.
- Platform risk. Exchanges and wallets can be hacked or fail.
Learn more about the wider crypto market in what are altcoins and Ethereum vs Bitcoin, and see how crypto is taxed.
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Frequently asked questions
Is a stablecoin the same as a CBDC?
No. A stablecoin is issued by a private company. A central bank digital currency would be issued by a central bank.
Are stablecoins safe?
Well-reserved, regulated stablecoins have held their peg well, but they are not bank deposits and are not insured.
Can you earn interest on stablecoins?
Not from US-regulated issuers. Some platforms offer rewards by lending stablecoins out, which adds risk.
This article is general information, not financial advice.
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