Stablecoins explained

A stablecoin is a token designed to hold a fixed value, usually one US dollar. It lets people move dollars on a blockchain without the price swings of bitcoin or ether. Stable is the goal, not a guarantee.

Why they exist

Blockchains run all day, every day. Bank transfers do not. Stablecoins let traders move between crypto and something dollar-like in seconds. People also use them to send money abroad and to hold dollars where local currencies are weak.

Three ways to hold the price

Backed by cash and bonds. A company issues one token for each dollar it receives. It keeps reserves in cash and short-term government debt and promises to redeem tokens for dollars. The two largest stablecoins, USDT and USDC, work this way. In October 2026 they had about $184 billion and $73 billion in circulation.

Backed by crypto. A smart contract issues tokens against deposits of other crypto. Because that collateral is volatile, it must be worth more than the tokens issued. DAI is the best-known example.

Algorithmic. No full reserve. Software tries to hold the price by expanding and shrinking supply, often using a second token. This type has the worst record.

How stablecoins have failed

TerraUSD, May 2022. This algorithmic stablecoin lost its dollar value and fell close to zero within days, along with its sister token. About $40 billion in market value was wiped out. A US jury later found the company and its founder liable for fraud.

USDC, March 2023. The issuer had $3.3 billion of its reserves at Silicon Valley Bank when the bank failed. Over that weekend USDC traded as low as 86 cents. It returned to one dollar after US authorities protected the bank's depositors.

The lesson from both: a stablecoin is only as stable as what stands behind it.

Risks to keep in mind

Reserves. You rely on the issuer holding what it claims.
Freezing. Issuers of the large dollar tokens can freeze the tokens at any address.
Redemption. Most holders cannot redeem directly with the issuer. They sell on an exchange at the market price.
No deposit insurance. A stablecoin is not a bank account.

New rules

Laws have started to catch up. In the United States, the GENIUS Act was signed on 18 July 2025. It requires payment stablecoins to be backed one-to-one by reserves such as dollars and Treasury securities, with monthly reports on those reserves. In the European Union, the MiCA regulation sets rules for stablecoin issuers.

Rules reduce some risks. They do not turn a token into cash.