Key Takeaways
- Stablecoins are crypto tokens designed to hold a steady value, usually $1, by tracking a currency such as the US dollar.
- Most large stablecoins, including USDT and USDC, are backed by cash and short-term government debt held by the issuer.
- They are used for trading, cross-border payments, saving in dollars and as the base currency of DeFi.
- Stablecoins are not risk-free: issuer, reserve, regulatory and de-peg risks all apply.
Most cryptocurrencies swing in price every day. Stablecoins are the exception: they are built to stay worth the same amount, usually one US dollar. That makes them the everyday cash of the crypto world and one of its most widely used products. This guide explains what stablecoins are, how they keep their value and what can go wrong.
What is a stablecoin?
A stablecoin is a token on a blockchain whose value is pegged to another asset, most often the US dollar but sometimes the euro or gold. One stablecoin is meant to be redeemable for, or trade at, one unit of that asset. Because they live on blockchains, stablecoins can be sent anywhere in the world in minutes, around the clock, for low fees.
How do stablecoins keep their value?
Fiat-backed stablecoins
The most common type. For every token in circulation, the issuer holds reserves in cash, bank deposits and short-term US Treasury bills. Approved customers can redeem tokens for dollars, and arbitrage traders buy below $1 or sell above $1 until the price returns to the peg. Examples include USDT from Tether and USDC from Circle, the two largest stablecoins by market value.
Crypto-backed stablecoins
These are created by locking up more crypto than the value of stablecoins issued, a practice called over-collateralization. If the collateral's value falls too far, smart contracts automatically sell it to protect the peg. DAI, and its successor USDS from the Sky protocol (formerly MakerDAO), are the best-known examples.
Algorithmic and synthetic stablecoins
Some designs try to hold the peg using algorithms, trading strategies or a companion token instead of full reserves. This category is the riskiest. The most famous failure, TerraUSD (UST), lost its peg and collapsed in May 2022, wiping out tens of billions of dollars in value.
Commodity-backed stablecoins
A smaller group of tokens is backed by physical assets such as gold, with each token representing a set weight held in a vault.
What are stablecoins used for?
- Trading: most crypto trading pairs are priced in stablecoins, letting traders move in and out of positions without leaving the crypto ecosystem.
- Payments and remittances: sending stablecoins abroad can be faster and cheaper than an international bank transfer.
- Saving in dollars: people in countries with high inflation or capital controls use dollar stablecoins to protect their savings.
- DeFi: stablecoins are the main currency for lending, borrowing and liquidity on decentralized finance platforms.
- Business settlement: payment companies and fintechs increasingly use stablecoins to move money between countries.
Stablecoin regulation
Governments have moved to bring stablecoins under formal rules. The European Union's MiCA regulation sets requirements for stablecoin issuers operating in the EU, and in July 2025 the United States enacted the GENIUS Act, its first federal framework for payment stablecoins, covering reserves, audits and licensing. Rules continue to evolve, so check the current status in your country.
Risks of stablecoins
- Issuer and reserve risk: you depend on the issuer actually holding the reserves it claims. Look for regular attestations or audits.
- De-peg risk: even well-backed stablecoins can briefly trade below $1. USDC fell to about $0.88 in March 2023 when some of its reserves were stuck at the failed Silicon Valley Bank, before recovering.
- Freezing: issuers of fiat-backed stablecoins can freeze tokens at specific addresses, for example to comply with law-enforcement requests.
- Smart contract and platform risk: stablecoins held in DeFi apps or on exchanges are exposed to hacks and failures.
- No deposit insurance: stablecoins are generally not covered by government deposit insurance the way bank accounts are.
How to buy and use stablecoins
You can buy major stablecoins on any large crypto exchange, often with zero or very low fees when converting from dollars. When sending them, make sure you choose the correct network (for example Ethereum, Solana or Tron); sending a token on the wrong network can mean losing it. Store stablecoins like any other crypto, ideally in a wallet you control. Our hot vs cold wallets guide explains your options.
Frequently asked questions
Are stablecoins safe?
Large, transparent, fully reserved stablecoins have generally held their peg well, but they carry issuer, regulatory and technical risks that a bank account does not. Diversifying and choosing well-audited issuers reduces risk.
Do stablecoins earn interest?
Holding a stablecoin usually earns nothing by itself. Some exchanges and DeFi platforms offer yield for lending or depositing stablecoins, but those returns come with extra platform and smart contract risk.
What is the difference between USDT and USDC?
Both aim to be worth $1 and are backed by reserves. Tether's USDT is the largest by market value and widely used on international exchanges, while Circle's USDC is known for regular reserve reports and close ties to regulated US financial institutions.
Are stablecoins the same as a central bank digital currency (CBDC)?
No. Stablecoins are issued by private companies or protocols. A CBDC would be issued directly by a central bank.
Need to convert between crypto and dollars? Try our crypto converter.
This guide is for educational purposes only and is not financial advice.
This content is for educational purposes only and is not financial advice. Cryptocurrency investments are volatile and risky. Some links may be affiliate links — see our disclosure.