Glossary A–Z

Stablecoin

A stablecoin is a crypto token that tries to stay worth a fixed amount, almost always one US dollar, while moving on a blockchain like any other token.

By TokenTrail Editorial2 min read · 7 sources
Close-up of a US one-dollar coin

Photo: “One dollar coin” by Sergey Galyonkin, CC BY-SA 2.0, via Flickr (edited: cropped and resized).

Quick answer

A stablecoin is a digital asset designed to maintain a stable value relative to a national currency or other reference asset [1]. Most track the US dollar. They differ in what backs that promise — cash-like reserves, crypto collateral or supply algorithms [2].

Key points

  • 1“Stable” is a design goal: the market price can move away from $1.
  • 2Three designs: fiat-backed, crypto-collateralized and algorithmic.
  • 3A stablecoin is a claim on its issuer or protocol, not an insured bank deposit.

How does a stablecoin work?#

New coins are created (minted) when someone gives the issuer an asset, and destroyed (burned) when they are returned for redemption [2]. For fiat-backed coins, the issuer promises to swap each token for one dollar, and traders who can use that promise keep the market price close to $1 [2]. Over 80% of trade volume on major centralized crypto exchanges involves a stablecoin as one side of the pair, which shows how central they are to crypto trading [2].

StepValue
Fiat-backed (e.g. USDT, USDC)Cash-like reserves held off-chain by a company
Crypto-collateralized (e.g. Dai)Crypto locked in smart contracts — e.g. $150 of ETH for 100 Dai
Algorithmic (e.g. the former TerraUSD)Rules that expand or shrink supply, with few or no reserves

Categories from the Federal Reserve [2]; the $150-for-100 Dai illustration is from a later Fed note [3].

Can a stablecoin lose its value?#

Yes. In March 2023, after Circle said $3.3 billion of USDC reserves was stuck at Silicon Valley Bank, both USDC and DAI fell below 90 cents on secondary markets before recovering over about three days [3]. Algorithmic designs hold few or no reserves, and TerraUSD collapsed in May 2022 [2]. Read the full guides: what are stablecoins and how stablecoins keep their peg.

  • Stablecoin supply ratio — Bitcoin’s market cap divided by stablecoin market cap.
  • DEX — decentralized exchanges, where stablecoins are the main dollar-like asset.
  • Wrapped token — another kind of token that represents an asset held elsewhere.

Frequently asked questions#

Are all stablecoins pegged to the US dollar?

Almost all. The BIS reports that over 99% of stablecoins are US dollar-denominated [4]; euro- and gold-linked coins also exist [2].

Can I redeem a stablecoin for a dollar myself?

Often not directly. For USDC, Circle says direct redemption through its Mint service is not available to individuals or small businesses, who use exchanges instead [5].

What is an “e-money token”?

The EU’s MiCA regulation uses this term for crypto-assets that reference a single official currency, and requires their holders to be able to redeem at any time and at par [6].

Is there a US law for stablecoins?

Yes. The GENIUS Act, Public Law 119-27, was approved on 18 July 2025 [7]. It lets only permitted issuers issue payment stablecoins in the United States and requires reserves of at least 1 to 1 in listed assets such as US dollars and Treasury bills with 93 days or less to maturity [7]. It takes effect 18 months after enactment or 120 days after regulators issue final implementing rules, whichever comes first [7]. This is education, not legal advice; see what are stablecoins for the details.

Sources#

Grade A = primary source (regulator, protocol specification, client code, original author). Grade B = expert secondary source used for explanation only.

  1. AU.S. Department of the Treasury — President’s Working Group on Financial Markets, FDIC and OCC. Report on Stablecoins (interagency report), 2021.
  2. ABoard of Governors of the Federal Reserve System. The stable in stablecoins (FEDS Notes), 2022.
  3. ABoard of Governors of the Federal Reserve System. Primary and Secondary Markets for Stablecoins (FEDS Notes), 2024.
  4. ABank for International Settlements. Annual Economic Report 2025, Chapter III: The next-generation monetary and financial system, 2025.
  5. ACircle. USDC, 2026. Issuer’s own page; used for its stated redemption terms.
  6. AOfficial Journal of the European Union (EUR-Lex). Regulation (EU) 2023/1114 on markets in crypto-assets (MiCA), 2023.
  7. AU.S. Congress (U.S. Government Publishing Office). Public Law 119-27: Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), 2025.