A stablecoin is a type of cryptocurrency designed to keep a steady value, often by tying its price to a traditional currency like the U.S. dollar.
Cryptocurrency is a form of digital money that typically runs on a blockchain, which is a shared online record of transactions that anyone can check and that no single company controls.
Cryptocurrencies like Bitcoin can swing wildly in price. Stablecoins are built to minimize that kind of volatility. One unit of a coin tied to the dollar should be worth $1 today, tomorrow, and next year.
The two largest stablecoins are Tether (USDT) and USD Coin (USDC), and both are tied one-to-one with the dollar. Nearly all stablecoins in circulation are pegged to the dollar..
How Do Stablecoins Stay at $1?
Most stablecoins are backed by real-world assets to help maintain their value. The company that issues the coin holds reserves, which are cash and safe, easy-to-sell assets like short-term U.S. Treasury bonds.
Imagine you send $100 to a stablecoin issuer. The issuer creates 100 new coins for you and puts your $100 into its reserves. Later, if you return those 100 coins, the issuer destroys them, and you get your $100 back.
The issuer makes money by earning interest on those reserves. If an issuer holds $1 billion in Treasury bills paying 4% a year, it earns about $40 million in interest. .
Why Would I Use Stablecoins?
Stablecoins ideally combine the steadiness of the dollar with the speed of crypto. That mix is intended to solve a few specific problems.
Sending Money Fast
Stablecoins can move between people anywhere in the world in minutes, 24 hours a day, including weekends and holidays when banks are closed.
That makes them useful for sending money to individuals overseas or for businesses paying suppliers in other countries.
Trading Crypto
Crypto traders often park money in stablecoins between trades. It can keep their balance steady without converting it back to dollars through a bank.
Holding Dollars Abroad
In countries with high inflation, stablecoins can give their owners a convenient way to indirectly hold U.S. dollars.
Behind-the-Scenes Bank Payments
Banks are starting to use stablecoins to settle payments with one another. In October , 2026, the state-owned Bank of North Dakota began using a dollar-backed stablecoin to move money among local banks and credit unions.
The 4 Main Types of Stablecoins
Not every stablecoin keeps its value the same way, which matters a lot for how safe it is.
Fiat-Backed Stablecoins
By far the most common type of stablecoin, these are backed by traditional money, called fiat currency, as well as assets like Treasury bills. USDC and Tether are fiat stablecoins.
Crypto-Backed Stablecoins
They’re backed by other cryptocurrencies that are locked up as collateral. Because crypto prices can be volatile, crypto-backed stablecoins may hold more collateral than they’re worth. An example would be $150 of bitcoin backing every $100 of the stablecoin.
Algorithmic Stablecoins
Instead of being backed by fiat currencies, they use algorithms to help maintain their target price. If the coin’s price rises above or falls below $1, the algorithm can add or remove coins from circulation.
Commodity-Backed Stablecoins
Instead of a fiat currency, this type of stablecoin is backed by a commodity, such as gold.
Are Stablecoins as Safe as Cash?
Owning a stablecoin is not the same as having dollars in a bank account. The cryptocurrency is not covered by federal insurance that protects up to $250,000 per depositor at a traditional bank.
Stablecoins can also lose their value in what’s known as a depeg. In March 2023, Silicon Valley Bank failed. Circle, the issuer of USD Coin, had about $3.3 billion of its reserves in the bank.
USDC briefly fell to 86 cents. It managed to recover within days after regulators announced that all the bank's depositors would be protected, but it showed that even a stablecoin backed by high-quality reserves can lose its peg during a crisis.
Do Stablecoins Pay Interest?
Under federal law, stablecoin issuers are banned from paying interest they earn to coinholders..
However, that ban doesn’t cover crypto exchanges, and some platforms offer "rewards" on stablecoin balances. Banks have argued that it’s a loophole, and they’re pushing lawmakers to close it.
How New U.S. Rules May Change Stablecoins
In July 2025, the GENIUS Act became the first federal law written specifically for stablecoins.
It requires issuers to hold at least $1 of approved reserves for every $1 of coins they create. Reserves can include cash, insured bank deposits, and short-term U.S. Treasury securities. Issuers also have to publish monthly reports on what those reserves contain.
The GENIUS Act also gives coinholders special priority on certain reserves if an issuer goes bankrupt.
An issuer generally will also need federal or state approval to issue a stablecoin for payments in the U.S.The rules are still being finalized and are set to go into effect on January 18, 2027.
How Do You Buy Stablecoins?
You can buy stablecoins through a crypto exchange, a website or app that works like a brokerage for digital currencies.
You link a bank account, deposit dollars, and swap them for coins, usually at or very close to $1 each.
To get your money back, you typically sell the coins on the exchange for dollars and withdraw the cash to your bank.
Before sending stablecoins to anyone, double-check that you’re both using the same blockchain network. Stablecoins that run on one network that are sent to an address on another can be difficult or impossible to recover.
