What is a Stablecoin?

A stablecoin is a cryptocurrency designed to hold a steady value by tracking a reference asset, most often the US dollar. The two largest, USDT and USDC, are each meant to trade at about $1. Where bitcoin and ETH swing in price, stablecoins act as the crypto economy’s digital dollars.

What are stablecoins used for?

• Trading: most crypto trading happens in stablecoin pairs such as BTC/USDT, and traders can step out of volatile assets without cashing out to a bank.
• Transfers: dollar value can move between exchanges or across borders in minutes, outside banking hours.
• DeFi: stablecoins serve as collateral, liquidity and a unit of account in lending and swapping protocols.
• Savings and payments: in countries with high inflation, some people hold stablecoins to keep their savings in dollars.

How do stablecoins work?

In the most common model, an issuing company holds reserves, such as cash and short-term US Treasury bills, for every token in circulation. Approved customers can send dollars to the issuer to mint new tokens, or return tokens to redeem them for dollars.

Redemption plus arbitrage is what holds the peg. If the token slips to $0.99 on the market, arbitrageurs buy it cheap and redeem it for $1; if it climbs to $1.01, they mint at $1 and sell. That trading pulls the price back. Direct redemption is usually limited to verified institutional customers, though; a retail user who buys a stablecoin on an exchange typically exits by selling it to someone else.

What are the types of stablecoins?

• Fiat-backed: each token is backed by reserves such as cash and Treasury bills. USDT (Tether, launched 2014) and USDC (Circle, launched 2018) dominate the market.
• Crypto-collateralized: users lock crypto such as ETH in a smart contract to mint stablecoins, putting up more collateral than they borrow to absorb price swings. MakerDAO’s DAI is the best-known example.
• Algorithmic: tries to hold the peg through supply adjustments and incentives instead of reserves. The most famous example, TerraUSD (UST), lost its peg and collapsed in May 2022.
• Commodity-backed: tracks a commodity such as gold; PAX Gold (PAXG) and Tether Gold (XAUT) are examples.

What is a depeg? Can stablecoins lose their peg?

A depeg is when a stablecoin trades meaningfully and persistently away from its target. Moves between $0.999 and $1.001 are routine; dropping below $0.97 signals a real liquidity or confidence problem.

The two best-known depegs had very different causes. TerraUSD’s algorithmic design unraveled in 2022 and the token became nearly worthless. USDC briefly fell below $0.90 in March 2023 after Silicon Valley Bank, which held part of its reserves, failed; it recovered to $1 within days once US authorities guaranteed the bank’s deposits. Together they show why reserve quality and redemption mechanics matter.

How can you check a stablecoin’s reserves?

Major issuers publish their reserve breakdowns regularly; Tether’s and Circle’s transparency pages are linked below. When reading them, look at:

1. Composition: how much is cash and short-dated Treasuries, and how much is in less liquid assets?
2. Type of report: an attestation confirms balances on a specific date; it is not a full audit of the company’s financial statements.
3. Date and firm: how recent is it, and which independent firm prepared it?

Regulators are paying close attention. The EU’s MiCA rules for stablecoins took effect in June 2024, and in the US the GENIUS Act, signed in July 2025, created a federal framework for dollar stablecoins.

Which network should you use to send USDT?

USDT and USDC are issued separately on many networks, including Ethereum, Tron, Solana and BNB Chain. When moving them between exchanges, picking the ticker isn’t enough; the network you send on must be supported by the receiving address. If a deposit address only accepts TRC-20 (Tron), don’t send via ERC-20 (Ethereum).

Fees differ a lot: transfers on Ethereum mainnet usually cost more than on Tron or Solana. Some networks also require their own native asset for fees, so you’ll need TRX on Tron or ETH on Ethereum. Our guide to choosing the right network covers this in detail.

Is a stablecoin stable in your own currency?

Only if your currency is the one it tracks. A dollar stablecoin aims to stay at $1, not at a fixed number of euros, pounds or lira. If you think in euros and the dollar weakens 5% against the euro, your USDC is worth 5% fewer euros even though it never left $1. Euro-denominated stablecoins exist for this reason, though they are far smaller than their dollar counterparts.

Can you earn interest on stablecoins?

Holding USDT or USDC in a wallet doesn’t earn anything; issuers keep the income from their reserves. When a platform offers 5% or 8% on stablecoins, the yield usually comes from lending your coins out, providing liquidity or other strategies, which adds platform, smart contract and borrower risk. Our guide to DeFi lending and borrowing explains where that yield comes from.

A checklist before you use a stablecoin

• Which model is it: fiat-backed, crypto-collateralized or algorithmic?
• Who is the issuer, and how often do they publish reserve reports?
• What is the official contract address on the network you plan to use?
• Can the issuer freeze addresses? (Both USDT and USDC can.)

Sources

• Ethereum: Stablecoin models
• Tether: Reserve transparency
• Circle: USDC transparency information