What is a stablecoin?

Cryptocurrencies move value quickly and change price constantly, which makes them awkward as money. A stablecoin fixes the price to a currency, usually the dollar, so that value can move on blockchain rails without the volatility.

It is the most used product in crypto. Most trading is priced in stablecoins, and a growing share of cross-border payments uses them for reasons that have nothing to do with speculation.

How the peg is held

Fiat-backed. You send a dollar, the issuer issues a token and holds the dollar in cash and short-term government debt. You can redeem the token for the dollar. This design dominates because it is simple and it works as long as the reserves are real and the issuer honours redemption.

Crypto-collateralised. Lock up more value in volatile crypto than the tokens issued, with automatic liquidation if the collateral falls. Capital-inefficient, and it does not depend on a company.

Algorithmic. Hold the peg with a mechanism instead of reserves. Every large attempt has failed, and one collapse in 2022 destroyed tens of billions in days. Treat any design that maintains a peg by minting a second token as a warning, not an innovation.

What you are actually holding

A claim on a company. Not cash, not a bank deposit, not a protected account. If the issuer's reserves are not what it says, or the custodian bank fails, or a regulator freezes something, your token is affected. This happened in 2023 when a large stablecoin briefly lost its peg because part of its reserves sat at a failing bank.

Why the issuer keeps the interest

Deposits earn interest and the token does not. That spread is the business, and at scale it is extremely profitable. It is also why paying yield on a stablecoin is legally awkward: a token that pays interest starts to look like a deposit or a fund, which requires a different licence.

The rules now

Europe has required full reserves, segregation, disclosure and a redemption right since MiCA applied in full at the end of 2024. The United States passed comparable legislation in July 2025. Tokens whose issuers did not comply were delisted from European venues. This is the single largest improvement in consumer protection this product has had.

Before you hold one

Find the reserve report. Check what share matures within three months and who the custodian is. Check whether the issuer can freeze addresses, because most can. Those three facts contain nearly all of the risk.