Glossary
Stablecoin
A stablecoin is a crypto token designed to keep a stable value, usually one US dollar or one euro, by holding reserves of cash and short-term government debt, crypto collateral or, more rarely, through an algorithm.
Also called Stable coin, Dollar token, E-money token (EMT), Asset-referenced token (ART), Payment stablecoin
See also
A stablecoin is a cryptocurrency built to keep a steady price, usually pegged one-to-one to a currency such as the US dollar or the euro. It combines the stability of money with the speed and openness of a blockchain. Tether (USDT) and USD Coin (USDC) are the best-known examples.
How a stablecoin works
There are three main designs:
- Fiat-backed: a company issues one token for each dollar or euro it holds in reserves (cash, bank deposits, short-term Treasury bills) and redeems tokens for money on request. USDT and USDC work this way.
- Crypto-collateralised: tokens are minted by smart contracts against crypto deposits worth more than the tokens issued, as with DAI and its successor USDS from Sky.
- Algorithmic: supply is managed by code and incentives, with little or no outside collateral. This model has the worst track record.
Arbitrage keeps the price close to the peg: if a token trades below $1, buyers can purchase it and redeem it at the issuer for $1.
A concrete example
A freelancer in Argentina is paid $800 in USDC on a blockchain network. The payment arrives within minutes for a small network fee, even on a weekend. She can hold it in her wallet, swap it on a DEX, or sell it for pesos on a local exchange.
Why it matters for users
Stablecoins are the main currency of crypto trading and DeFi, a way to move dollars or euros across borders quickly, and a place to park funds without leaving the crypto ecosystem. Regulators now treat them like payment instruments. In the EU, MiCA rules for e-money tokens and asset-referenced tokens have applied since 30 June 2024. In the US, the GENIUS Act, signed on 18 July 2025, requires payment stablecoins to be fully backed by liquid assets such as dollars or short-term Treasuries, with monthly disclosure of reserves.
Risks and limits
- Issuer risk: the token is only as good as the reserves and the company behind it.
- De-pegging: in May 2022, the algorithmic stablecoin TerraUSD (UST) lost its dollar peg and collapsed, wiping out tens of billions of dollars.
- Freezes: centralised issuers can block addresses at the request of authorities.
- Regulation: a token may be restricted on platforms in some regions if its issuer lacks the required licence.
Our guide What are stablecoins? goes deeper.