What is a stablecoin?
Crypto designed not to move in price, and what's actually backing it.
A stablecoin is a cryptocurrency designed to stay at a fixed value, usually $1. The biggest, USDT and USDC, are issued by companies that say they hold reserves worth at least as much as every coin and let approved customers swap them back for dollars. USDC's reserves are cash and short-term US government debt; USDT's are mostly the same, plus some gold, bitcoin and loans.
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 account for a large share of all crypto trading.
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, 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 |
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 never recovered.
A stablecoin is not a bank deposit. It isn't covered by FDIC deposit insurance, and holding one on an exchange adds the exchange's risk too.
Rules in the US
The GENIUS Act, signed into law in July 2025, created the first US federal rules for dollar stablecoins used for payments: issuers must be licensed and hold reserves such as cash and short-term Treasuries one-for-one, with regular public reports. Its main requirements take effect by January 2027, and regulators are still finishing the detailed rules.
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.
Do stablecoins pay interest?
The coins themselves don't. Some platforms offer a yield for lending them out, 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.
Where to next
Sources
Written for beginners and checked against the sources listed. Last reviewed October 26, 2026. This page is educational and is not financial, tax or legal advice. How we write and check pages.