Stablecoin

A stablecoin is a token whose price is meant to stay fixed, most commonly at one US dollar. Traders use stablecoins to park money between trades without leaving the crypto system, and people in countries with weak currencies use them as a dollar substitute. The two largest, Tether (USDT) and USD Coin (USDC), together have a market value in the hundreds of billions of dollars.

Most major stablecoins are fiat-backed: the issuer holds cash and short-term US Treasury bills for every token in circulation and promises to redeem each token for one dollar. Others, such as DAI, are backed by crypto collateral locked in smart contracts, and they overcollateralize to absorb price swings. A third category, algorithmic stablecoins, tried to hold a peg with no full backing, and the collapse of TerraUSD in May 2022 erased tens of billions of dollars.

Stablecoins are not risk-free. A peg can break if reserves are doubtful or if there is a rush to redeem. Regulators have responded with specific rules: the European Union's MiCA framework took full effect at the end of 2024, and the United States passed federal stablecoin legislation, the GENIUS Act, in July 2025.