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Stablecoins

Stablecoins explained: how dollar-pegged tokens such as USDT and USDC work, how they are backed, why some have lost their peg, and how new rules in the US and EU apply to them.

These guides explain stablecoins: crypto tokens designed to hold a steady value, usually $1. They act as the cash layer of crypto, used for trading, payments, transfers across borders and DeFi. The two largest, USDT (Tether) and USDC (Circle), are backed by reserves of cash and short-term government debt, but not all stablecoins work the same way.

Start here

  1. What is a stablecoin and how does it work?
  2. USDT vs USDC: which stablecoin is safer?
  3. What is DeFi? Where stablecoins are used most.

Key concepts

Types of stablecoins

  • Fiat-backed: each token is backed by reserves such as cash and Treasury bills held by the issuer.
  • Crypto-backed: tokens are backed by more than their value in other crypto, locked in smart contracts.
  • Algorithmic: tokens rely on code and market incentives rather than full reserves. TerraUSD’s collapse in May 2022 showed how quickly this design can fail.

The peg and redemption

A stablecoin holds its peg because large holders can redeem tokens for $1 from the issuer, or buy cheap tokens and redeem them. If people doubt the reserves, the price can slip below $1, known as a depeg. USDC briefly fell to around $0.88 in March 2023 when part of its reserves sat at the failed Silicon Valley Bank.

Regulation

The EU’s MiCA regulation has applied to stablecoin issuers since mid-2024. In the US, the GENIUS Act, signed in July 2025, set a federal framework for payment stablecoins, including reserve and disclosure requirements. Implementing rules are still being phased in, so check the current status.

Risk note

Stablecoins are not bank deposits and are not FDIC-insured. Risks include reserve problems, issuer failure, frozen addresses and depegs. Check how a stablecoin is backed and who audits or attests to its reserves. See the crypto hub for more.

Stablecoins: frequently asked questions

Are stablecoins safe?

They are designed to be less volatile than other crypto, but they are not risk-free. A stablecoin can lose its peg if confidence in its reserves falls, and holdings are not covered by deposit insurance. Fully reserved, regularly attested stablecoins are generally considered lower risk than algorithmic designs.

How do stablecoin issuers make money?

Fiat-backed issuers typically earn interest on the reserves, such as Treasury bills, that back the tokens. Holders of the tokens usually do not receive that interest directly. Some platforms offer yield on stablecoins by lending them out, which adds risk.

What is the difference between USDT and USDC?

Both aim to track the US dollar and are backed by reserves. They differ in issuer, reserve disclosures, regulatory status and which platforms and blockchains support them. Our USDT vs USDC guide compares them in detail.