Overview

A stablecoin is a type of cryptocurrency that aims to maintain a stable value relative to a specified asset, a pool or basket of assets. The specified asset might refer to fiat currency, commodity, or other cryptocurrencies. Despite the name, stablecoins are not necessarily stable. Stablecoins rely on stabilization tools such as reserve assets or algorithms that match supply and demand to try to maintain a stable value.

Historically, multiple stablecoins have failed to maintain their value relative to the underlying assets. With a growing number of market transactions involving stablecoins, their issuance and usage are increasingly regulated by governments around the world.

Background

Stablecoins emerged in 2014 as a method for investors in cryptocurrencies to park their money when they invest in other highly volatile cryptocurrencies. Stablecoins are now mainly used for buying or selling cryptoassets, and for making cross-border payments. According to the Bank for International Settlements in July 2025, 90% of the market capitalization of stablecoins was either in Tether or USDC. According to the Financial Action Task Force, the market capitalization of stablecoins reached $316 billion in October 2025, while daily trading volume reached $156 billion.

Within the stablecoin market, 95% of them are backed by fiat currency, while 97% among those fiat currency-backed stablecoins are denominated in US dollar.

Fiat-backed stablecoins

Fiat-backed stablecoins are stablecoins that are backed by assets denominated in a fiat currency. The value of a fiat-backed stablecoin is based on the value of the backing currency, which is supposedly held by a third party custodian. The issuer defends the peg of the stablecoin by holding mostly fiat-denominated short-term assets, such as treasury bonds, high-quality commercial paper, repurchase agreements and bank deposits.

Therefore, the structure of fiat-backed stablecoins closely resembles that of money market funds (MMFs), and they are exposed to similar risk of large-scale redemption requests causing negative contagion effects on the financial system.

As of October 2025, nearly 97% of fiat-backed stablecoins are pegged to the US dollar. Major examples of US-dollar-pegged stablecoins are Tether's USDT and Circle's USDC. For Euro-pegged stablecoins, examples include Circle's EURC, EUR Tether, and Stasis EUR.

Cryptocurrency-backed stablecoins

Cryptocurrency-backed stablecoins are stablecoins using other cryptocurrencies as collateral. The reason such stablecoins are created is that by utilizing smart contracts, they allow a decentralized network to track the price of the US dollar as closely as possible. Another use case of cryptocurrency-backed stablecoins is to convert a cryptocurrency into ERC20 compatible standard to enable trading on another blockchain.

Commodity-backed stablecoins

Commodity-backed stablecoins are stablecoins that are backed by commodities. Examples are PAX Gold and Tether Gold.