Stablecoins are crypto tokens designed to hold a steady value, usually one US dollar. They let people move dollar-like value on a blockchain at any hour without going through a bank transfer. Most crypto trading is priced against them, and they are widely used in lending, payments and transfers between countries. The ethereum.org stablecoin overview gives a general introduction.
A stablecoin is only as stable as the system behind it.
Types of Stablecoins
- Fiat-backed: a company holds reserves such as cash and short-term US Treasury bills and issues one token for each dollar. USDT from Tether and USDC from Circle are the two largest.
- Crypto-collateralized: users lock crypto worth more than the stablecoins they mint. DAI is the best-known example. Because the collateral is volatile, positions must be overcollateralized and are liquidated if the collateral value falls too far.
- Algorithmic: the peg depends on incentives and a companion token instead of full reserves. This design has the worst record. TerraUSD (UST) lost its peg in May 2022 and collapsed together with its sister token LUNA, wiping out tens of billions of dollars in value.
- Synthetic and yield-bearing: newer tokens that hold a mix of assets and hedges, or pass through interest. These are covered below.
How a Fiat-Backed Stablecoin Keeps Its Peg
The peg rests on redemption. Approved customers, mostly trading firms, can send dollars to the issuer and receive new tokens, or return tokens and receive dollars. If the token trades below one dollar on the market, these firms can buy it cheaply and redeem it for a full dollar. If it trades above, they mint new tokens and sell them. That arbitrage pulls the price back toward one dollar.
Most retail users never redeem directly. They buy and sell on exchanges at the market price.
USDT and USDC
Tether launched in 2014 and USDT is the largest stablecoin by supply. It is used heavily on exchanges worldwide and for dollar transfers in emerging markets. Tether publishes quarterly reserve reports with an attestation from an accounting firm. It has faced long-running criticism over how much detail it discloses, and it settled with US regulators in 2021 over past statements about its reserves.
USDC launched in 2018 and is issued by Circle, a US company. Circle publishes regular reserve disclosures and monthly attestations, and most of the reserves sit in a government money market fund and bank deposits.
Both issuers can freeze tokens at specific addresses, and both have done so at the request of law enforcement. This helps recover stolen funds, and it also means these tokens are not censorship resistant.
DAI and Its Successor
DAI was created by MakerDAO and launched in 2017. Users mint it by locking collateral in smart contracts. Over time, the collateral came to include USDC and tokenized real-world assets, so DAI is less independent of the traditional financial system than its design suggests. In 2024 the project rebranded as Sky and introduced a new token, USDS, alongside DAI.
How Issuers Make Money
Fiat-backed issuers invest their reserves in short-term government debt and similar instruments and keep the interest. Holders of plain USDT or USDC receive none of it. When interest rates are high, this is a very profitable business.
Yield-Bearing and Synthetic Dollars
- sDAI and similar savings tokens: a wrapper that earns the savings rate paid by the Maker and Sky system.
- USDe from Ethena: a synthetic dollar backed by crypto collateral paired with short futures positions. The yield comes mainly from staking rewards and futures funding payments, which can turn negative.
- Tokenized Treasury products: tokens such as USDY from Ondo pass through yield from short-term US government debt. These are closer to investment products than to payment stablecoins, and access is often restricted by country and investor type.
Yield always comes from somewhere. Higher yield means added risk from smart contracts, counterparties or the strategy itself.
Regulation
In the European Union, the stablecoin provisions of the Markets in Crypto-Assets Regulation (MiCA) have applied since June 30, 2024. Issuers need authorization and must meet reserve and redemption requirements.
In the United States, the GENIUS Act was signed into law in July 2025. It sets a federal framework for payment stablecoins, including one-to-one reserve backing and regular disclosure.
Stablecoin Risks
- Depegging: a stablecoin can trade below one dollar under stress. In March 2023, USDC fell below 90 cents for a short time after Circle disclosed that $3.3 billion of its reserves were held at Silicon Valley Bank, which had just failed. The price recovered after US authorities guaranteed the bank's deposits.
- Reserve quality: an attestation is a snapshot, not a full audit. Trust in reserves varies between issuers.
- Freezing: centralized issuers can block addresses.
- Smart contract and bridge risk: bridged versions of a stablecoin depend on the bridge. If the bridge is hacked, the bridged token can lose its backing.
- No deposit insurance: stablecoin balances are not bank deposits and are not covered by deposit insurance schemes.
Common Mistakes
- Sending a stablecoin on the wrong network. USDT and USDC exist on many chains, and the receiving address must support the same one.
- Treating all dollar tokens as equal. A bridged or synthetic version is not the same as the issuer's native token.
Nothing in this article is financial advice.
Key Dates
- 2014: Tether (USDT) launches
- 2017: DAI launches
- 2018: USDC launches
- May 2022: TerraUSD collapses
- March 2023: USDC briefly loses its peg
- June 30, 2024: MiCA stablecoin rules apply in the EU
- July 2025: GENIUS Act signed in the United States
Track on CoinMarketGuy
The Tether and USD Coin pages show each token's live price, market cap and circulating supply, so you can see whether a peg is holding. The DEX page lists active liquidity pools, many of which are paired with stablecoins.