Stablecoins explained: types, pegs, risks and US rules

A stablecoin is a crypto token built to hold a steady price, almost always one US dollar. It lets you move dollar value on a blockchain in minutes, but it is only as reliable as the reserves, the issuer and the redemption process behind it.

What a stablecoin is

Most crypto prices float freely. A stablecoin is different: it tries to stay pinned to an outside reference, called its peg. For the large majority of stablecoins that reference is the US dollar.

The token itself lives on a blockchain such as Ethereum, Tron or Solana. That means you can hold it in a wallet, send it to anyone with an address, and use it inside apps, all without a bank in the middle of each transfer.

The hard part is the promise behind the token. Something has to give holders confidence that one token really is worth one dollar. Stablecoins differ mainly in how they make that promise.

The main types of stablecoins

Fiat-reserved stablecoins

A company holds dollars and short-term government assets, and issues one token for each dollar of reserves. Approved customers can send dollars in to create tokens or hand tokens back to get dollars out. Tether (USDT), USDC, PayPal USD and Ripple USD all work this way. You are trusting the issuer to keep the reserves it says it has and to honor redemptions.

Crypto-collateralized stablecoins

Here the backing is other crypto locked in smart contracts. Because crypto prices swing, these systems demand more collateral than the stablecoins they create, a design called overcollateralization. If collateral falls in value, the system sells it to cover the debt. DAI and its successor USDS from the Sky protocol (formerly MakerDAO) are the best-known examples, although much of their backing today is other stablecoins and tokenized funds.

Synthetic or delta-neutral stablecoins

These hold volatile assets such as ether and pair them with an equal short position in futures, so gains and losses roughly cancel out. Ethena's USDe is the main example. It does not rely on dollars in a bank, but it does rely on exchanges, custodians and futures funding rates behaving as expected.

Commodity-backed tokens

Some tokens track a commodity rather than a currency. PAX Gold and Tether Gold each represent one troy ounce of vaulted gold. They are "stable" only in the sense that they follow gold, so their dollar value rises and falls with the gold price.

Yield-bearing stablecoins

A newer group passes income to holders, often through a separate "savings" or "staked" version of a stablecoin. Examples include staked USDe and the Sky Savings Rate on USDS. The yield has to come from somewhere, such as lending, Treasury bills or futures trades, and each source adds its own risk. Under the GENIUS Act, licensed US payment stablecoin issuers may not pay holders interest or yield directly.

How pegs hold and how they break

For a fiat-reserved coin, the peg is held by arbitrage. If the token trades at 99 cents on an exchange, a large customer can buy it cheaply and redeem it with the issuer for a full dollar. If it trades above a dollar, that customer can create new tokens at $1 and sell them. Those trades pull the market price back toward $1, as long as people believe redemption works.

Crypto-backed and synthetic designs rely on collateral buffers, automatic liquidations and incentives instead. They can wobble when markets crash fast or when collateral is hard to sell.

A depeg happens when confidence in that mechanism cracks. Two cases show the range of what can go wrong.

TerraUSD (UST), May 2022

UST was an algorithmic stablecoin on the Terra blockchain. It was meant to be swappable for $1 worth of the LUNA token, with no pool of dollars behind it. In May 2022, heavy withdrawals pushed UST below its peg, holders rushed to swap out, and new LUNA was minted in huge amounts. Both tokens fell close to zero within days. The SEC later charged Terraform Labs and its co-founder Do Kwon with fraud, and in December 2025 a US court sentenced Kwon to 15 years in prison.

USDC, March 2023

USDC was a very different case. On March 10, 2023, Silicon Valley Bank failed, and Circle disclosed that about $3.3 billion of its reserves were held there. Over the weekend, USDC fell below 87 cents on some markets. When US authorities announced that all SVB depositors would be protected, the price returned to about $1. The reserves were real; the problem was that some of them were briefly out of reach.

Attestations vs audits

Issuers often say their tokens are "fully backed," so it helps to know what kind of proof stands behind the claim.

• Attestation: an accounting firm checks the issuer's report on its reserves at a specific moment, often a single day each month. It confirms the reserves existed on that date; it does not review the whole business.
• Audit: a broader review of the company's financial statements over a full period, including liabilities, controls and how numbers were produced.
• On-chain transparency: crypto-backed systems such as Sky show their collateral on the blockchain, which anyone can inspect, but reading it takes some skill.

The GENIUS Act requires licensed issuers to publish their reserve composition monthly, examined by a registered public accounting firm, and requires annual audited financial statements from the largest issuers.

Redemption: who can get a dollar back

Redemption is the right to hand tokens to the issuer and receive dollars. It is the backbone of the peg, but most people never use it directly. Large issuers usually limit redemption to verified business customers, sometimes with high minimums; Tether, for example, sets a $100,000 minimum.

Everyday users typically "redeem" by selling the stablecoin on an exchange or converting it in an app such as PayPal. That works well in normal times. In a crisis, your exit depends on the exchange staying open and liquid.

Crypto-backed stablecoins like DAI and USDS have no company that pays out dollars at all. You exit by selling or swapping them for another stablecoin.

US law: the GENIUS Act

The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act was signed into law on July 18, 2025. It creates the first federal framework for "payment stablecoins" in the United States. Key points:

• Only permitted issuers, such as subsidiaries of banks, federally approved nonbank issuers, or state-regulated issuers with $10 billion or less outstanding, may issue payment stablecoins in the US.
• Reserves must back tokens one-to-one with cash, deposits, short-term Treasuries and similar high-quality assets, with monthly public disclosure.
• Issuers may not pay holders interest or yield.
• Payment stablecoins are not deposits, are not federally insured and are not backed by the US government.
• Foreign issuers face conditions to stay available on US platforms, and from July 18, 2028, US service providers generally may offer only stablecoins from licensed issuers.

Implementation status, as of October 2026: the Act is expected to take effect on January 18, 2027. Treasury, the OCC, the FDIC, the NCUA, FinCEN and the Federal Reserve have all issued proposed rules, with the Fed's proposals published in late September 2026. The only binding rule so far is a Treasury interim final rule, effective September 30, 2026, setting procedures for reviewing state stablecoin regimes. Most core rules on reserves, capital and licensing were still proposals at that point.

For broader context on crypto rules, see our laws and regulations guide.

How people use stablecoins

• Payments: businesses and individuals send stablecoins to settle invoices or pay freelancers, often in minutes and at any hour.
• Remittances and cross-border transfers: sending dollar tokens abroad can avoid some wire delays, though converting to local currency still costs money.
• Trading: on many exchanges, stablecoins act as the "cash" side of trades, letting traders step out of volatile assets without leaving crypto.
• DeFi: stablecoins are the main asset lent and borrowed in decentralized finance, and they serve as collateral across many apps. Our lending and borrowing guide covers this in depth.
• Holding dollars: in countries with unstable currencies, some people use stablecoins to keep savings in dollar terms.

The main risks

• Reserve risk: the backing may be weaker, riskier or less liquid than claimed.
• Issuer and operational risk: a company's controls can fail, as when Paxos accidentally minted $300 trillion of PYUSD in October 2025 before burning it.
• Freeze risk: fiat-backed issuers can block tokens at specific addresses, usually at law enforcement's request.
• Smart-contract and design risk: code bugs, oracle failures or a flawed design can break crypto-backed and synthetic coins.
• Platform risk: if you hold stablecoins on an exchange or lending app, you also depend on that company's solvency.
• Scams: fraudsters favor stablecoins because victims see a familiar dollar value. See our scam guide for warning signs.

Major USD stablecoins compared

Live supply and market data for each coin appear on its profile page and in our stablecoin directory.

Smaller stablecoins we do not profile individually

• USDD: a Tron-ecosystem stablecoin that began as an algorithmic design in 2022 and relaunched as an overcollateralized "USDD 2.0" in January 2025.
• FDUSD: issued by Hong Kong-based First Digital; it briefly fell to about 87 cents in April 2025 after public insolvency allegations, which the issuer denied.
• TUSD (TrueUSD): court filings in 2025 showed that about $456 million of its reserves were stuck in illiquid investments, according to its issuer, Techteryx.
• GHO: an overcollateralized stablecoin created by the Aave lending protocol, launched on Ethereum in July 2023.
• EURC: Circle's euro-backed stablecoin, which the company says complies with the European Union's MiCA rules.

Where to go next

Stablecoins aim to hold a fixed price, but most tokens do not, and their value depends partly on how many exist and who holds them. Continue the course with market cap and tokenomics to learn how supply, issuance and unlocks shape a token.

Updated October 4, 2026 by The Crypto Guide editorial team. Educational content, not financial, legal or tax advice. Spot an error? Request a correction.