What is a stablecoin?
Crypto designed not to move in price, and what's actually backing it.
A stablecoin is a cryptocurrency designed to keep a steady value, usually exactly $1. The biggest, Tether (USDT) and USD Coin (USDC), are issued by companies that hold reserves, mostly US Treasury bills and cash, worth at least as much as every coin, and let approved customers swap coins back for dollars. That lets people hold and send dollars on a blockchain at any hour.
Why they exist
Most crypto swings in price, which makes it awkward for paying or for parking money between trades. Stablecoins let people hold and move dollar value on a blockchain, any hour of any day, often faster and cheaper than an international bank transfer. They're used for most crypto trading, for DeFi lending, and increasingly for cross-border payments and by people in countries with unstable currencies.
How a stablecoin stays at $1: an example
- A business sends $1 million to the issuer, say Circle.
- Circle creates ("mints") 1 million new USDC and sends them to the business's wallet, and puts the $1 million into reserves.
- The USDC can now move between wallets and exchanges, on any of the blockchains it's issued on.
- Later, someone redeems 1 million USDC. Circle destroys ("burns") the coins and pays out $1 million from reserves.
Because approved traders can always swap $1 for one coin and back, any gap is an easy profit: if USDC traded at $0.99 on an exchange, they'd buy it there and redeem it for $1, pushing the price back up. That only works as long as people trust the reserves are really there and redemptions keep working.
The main types
| Type | How it holds $1 | Examples | Main risk |
|---|---|---|---|
| Backed by cash and bonds | The issuer holds dollars and short-term US Treasuries and redeems coins for dollars | USDC, PYUSD, RLUSD, and mostly USDT (which also holds some gold, bitcoin and loans) | The issuer, its banks, or its reserves |
| Backed by other crypto | Locked crypto worth more than the stablecoins issued; sold off automatically if prices fall | DAI / USDS | A sudden crash in the collateral |
| Algorithmic | Software expands and shrinks supply, with little or no real backing | TerraUSD (UST) was one | Collapse; UST lost almost all its value in May 2022 |
How big the whole market is, who issues it and how supply grows and shrinks: the stablecoin market.
USDT vs. USDC
| Compare | Tether (USDT) | USD Coin (USDC) |
|---|---|---|
| Issuer | Tether, a private company based in El Salvador | Circle, a US company listed on the NYSE |
| Size (late September 2026) | About $183 billion outstanding | About $73.5 billion held in reserves |
| Backing | Mostly Treasury bills and repos, plus gold, bitcoin, secured loans and other investments | Cash and a BlackRock-managed government money market fund |
| Reports | Quarterly attestation by BDO | Weekly figures and monthly attestation by a Big Four firm |
| Mostly used on | Tron and Ethereum; popular in trading and emerging markets | Ethereum, Solana, Base and others; common in US and EU apps |
Figures are from Tether's September 30, 2026 attestation and Circle's SEC filing for the same date. For a three-way comparison that adds DAI, with depeg history and GENIUS Act status, see USDT vs. USDC vs. DAI.
When a stablecoin "depegs"
A stablecoin can trade below $1 when people doubt the backing. In March 2023, USDC briefly fell to about $0.88 after it emerged that part of its reserves sat at the failing Silicon Valley Bank; it recovered once those funds were secured. TerraUSD, an algorithmic stablecoin, lost its peg in May 2022 and never recovered, wiping out tens of billions of dollars.
A stablecoin is not a bank deposit. It isn't covered by FDIC deposit insurance, and holding one on an exchange or lending app adds that company's risk too.
Common mistakes and scams
- Wrong network. USDT on Tron and USDT on Ethereum are separate. Sending on a network the receiver doesn't support can lose the funds. See sent to the wrong network.
- No gas money. To send USDC on Ethereum you also need a little ETH for the fee (on Tron, TRX). See coin vs. token.
- Fake tokens. Anyone can create a token called "USDT." Check the contract address on the issuer's website.
- "Flash USDT" and fake balances. Offers of cheap or "flash" USDT, or screenshots of huge balances, are scams. Real USDT can't be faked in your wallet.
- Too-good yields. "Earn 20% on your USDT" usually means lending it to someone risky or to a scam. See where yield comes from.
- Romance and investment scams often ask victims to buy USDT and send it to a "trading platform." See fake trading sites.
The rules in 2026
United States. The GENIUS Act, signed in July 2025, is the first federal law for dollar "payment stablecoins." Issuers must be licensed, hold reserves one-for-one in cash, short-term Treasuries and similar assets, and publish monthly reserve reports. It takes effect on January 18, 2027; the OCC finalized its main rule on October 21, 2026. Tether launched a separate US token, USAT, in January 2026 to fit the new rules.
European Union. Under the MiCA regulation, only authorized stablecoins can be offered to EU customers by regulated firms. Circle's USDC is authorized; many EU platforms restricted USDT in 2025.
Frequently asked questions
Are stablecoins safe?
They're designed to be stable in price, not risk-free. The risk depends on the issuer, what backs the coin and where you hold it. Fully reserved, regulated stablecoins are generally considered lower risk than algorithmic ones.
Is a stablecoin a cryptocurrency?
Yes. It's a crypto token on a blockchain, but its value is tied to a currency such as the dollar instead of floating freely.
Is XRP or Bitcoin a stablecoin?
No. Their prices move freely. Ripple's stablecoin is a separate token, RLUSD.
Do stablecoins pay interest?
The coins themselves don't, and US law bars issuers from paying interest on payment stablecoins. Some platforms offer rewards for holding or lending them, which adds the platform's risk.
Can I turn a stablecoin back into dollars?
Usually by selling it on an exchange. Direct redemption with the issuer is typically for approved business customers.
Who makes money from stablecoins?
Mostly the issuers: they earn interest on the Treasury bills backing the coins, while holders usually earn nothing.
Where to next
Sources
- GENIUS Act, S.1582 (Congress.gov)
- OCC finalizes GENIUS Act stablecoin rules (Decrypt, October 2026)
- Tether transparency (tether.to)
- USDC transparency (Circle)
- Circle Form 10-Q, quarter ended September 30, 2026 (SEC)
- Stablecoins (ethereum.org)
Written for beginners and checked against the sources listed. Last reviewed November 4, 2026. This page is educational and is not financial, tax or legal advice. How we write and check pages.