What is a stablecoin?
A stablecoin is a crypto token designed to maintain a fixed value—most commonly one US dollar—by holding reserves or using other mechanisms that stabilize its price. Stablecoins circulate mainly on public blockchains and promise redemption at par, which is why they are often used like digital cash inside crypto apps.
As a quick snapshot of scale, the combined market value of stablecoins was roughly $278 billion on August 22, 2025, with USDT the largest by share. These figures change frequently but provide useful context for size and dominance.
Why stablecoins matter in 2025
Two regulatory milestones are driving mainstream adoption. In the United States, the GENIUS Act became law on July 18, 2025, creating the first federal regime for payment stablecoins, including reserve, disclosure, and supervision requirements. In the European Union, MiCA’s rules for e-money tokens and asset-referenced tokens took effect in 2024, with supervisors directing platforms to phase out non-compliant stablecoins. Together, these frameworks raise the bar on backing, governance, and consumer protection.
Payments networks are also leaning in. Visa has expanded settlement support for additional stablecoins and chains, and its research arm estimates stablecoin transaction activity reached into the trillions of dollars in 2024 even after adjustments for wash trading—pointing to growing real-world usage.
The main types of stablecoins
Fiat-backed (custodial)
These are issued by a company that holds cash and short-term government securities so each token can be redeemed 1:1. Examples include USDC from Circle and USDT from Tether. Issuers publish regular reserve reports or attestations by independent firms so users can evaluate backing quality and liquidity.
Crypto-collateralized (on-chain)
Protocols like MakerDAO allow users to lock crypto collateral in smart contracts and mint a stablecoin (for example, DAI). Positions are over-collateralized and can be liquidated if collateral value falls. Design choices and governance parameters help keep the token near its peg.
Algorithmic or under-collateralized
These mechanisms attempt to hold the peg with incentives and elastic supply rather than full reserves. The TerraUSD collapse in 2022 showed how quickly confidence can fail and why robust collateral and circuit breakers matter. Use these with extreme caution.
How pegs are maintained
- Reserves and redemption: Fiat-backed issuers keep cash and short-dated Treasuries and offer redemption at par, which anchors secondary-market pricing. Periodic attestations provide transparency into assets and liabilities.
- Collateral and liquidation: On-chain systems set minimum collateral ratios and liquidate positions when thresholds are breached, using oracles and auctions to cover outstanding debt.
- Market structure: Listing rules, routing, and market-maker activity help maintain tight spreads; when stress hits, depth and redemption plumbing determine whether a peg holds. Supervisors warn that fragile pegs can trigger run dynamics.
Pros: what stablecoins are good at
- Lower volatility versus free-floating crypto, enabling pricing and settlement in dollars or euros inside apps and exchanges.
- Programmable, 24/7 transfers on public infrastructure, useful for treasury operations, DeFi, and automated payouts.
- Cross-border utility: enterprises and networks are piloting settlement and merchant acceptance, reducing cut-off windows and improving reconciliation speed.
Cons and risks you should factor in
- Issuer and reserve risk: quality, liquidity, and disclosure of backing assets vary; most providers publish attestations, not full audits. Evaluate frequency, auditor, and redemption terms.
- Run and depeg risk: stress can cause mass redemptions and fire-sale dynamics; algorithmic designs are particularly vulnerable, as TerraUSD showed.
- Regulatory and geographic constraints: in the EU, non-MiCA-compliant stablecoins have faced restrictions and delistings; compliance status affects availability.
- Policy headwinds: central banks caution that private stablecoins may fragment money and challenge monetary sovereignty if not tightly regulated.
Leading examples and how they differ
- USDC (Circle): fiat-backed dollar stablecoin with published reserve composition and third-party monthly attestations; also offers a euro variant (EURC).
- USDT (Tether): the largest stablecoin by supply; publishes quarterly attestations and detailed reserve breakdowns.
- DAI (MakerDAO): crypto-collateralized and governed on-chain; users mint against over-collateralized vaults per the Maker Protocol.
- PYUSD (PayPal): a dollar stablecoin issued by Paxos and integrated across PayPal/Venmo products, with reserve reports and attestations.
- EURC (Circle): a euro-backed stablecoin with monthly transparency reporting and growing support on exchanges and payment rails.
Top use cases today
- Trading and market access: quoting pairs in dollars, hedging, and moving collateral between venues without banking friction.
- DeFi collateral and settlement: deposits into lending markets, liquidity provision, and margining strategies rely on stable unit-of-account tokens.
- Merchant and network settlement: pilots and rollouts by global payment networks have expanded supported coins and chains for 24/7 settlement.
- Cross-border transfers and treasury: stablecoins can compress settlement windows and simplify reconciliation for multi-entity groups and marketplaces.
How to choose a stablecoin (due-diligence checklist)
- Read the latest transparency or attestation report; note asset types, maturities, custodians, and whether cash and short-term Treasuries fully cover liabilities.
- Confirm redemption mechanics and any limits or fees; robust redemption supports secondary-market stability.
- Check regulatory posture where you operate: MiCA compliance in the EU, and GENIUS Act/US state or federal authorization in the US.
- Mind integration and chain support: wallet, exchange, and payments network support affect real-world usability.
Quick FAQ
Are stablecoins safe?
They can be relatively stable compared with other crypto, but safety depends on reserves, transparency, redemption, and governance. Regulators emphasize run and peg risks if safeguards are weak.
What happened with algorithmic stablecoins?
Algorithmic designs that lack robust collateral can unravel quickly under stress. TerraUSD’s 2022 failure is the canonical example and informs today’s policy stance.
What changed in US and EU regulation?
The US enacted the GENIUS Act in July 2025, establishing a federal regime for payment stablecoins. In the EU, MiCA’s stablecoin rules became applicable in 2024, and supervisors have pressed platforms to restrict non-compliant tokens.
How are big payment companies using stablecoins?
Visa has expanded stablecoin settlement support and continues production pilots with issuers and acquirers, aiming to reduce cut-off windows and enable weekend settlement.
Sources
- DefiLlama stablecoin market tracker for aggregate supply and dominance.
- US regulation: White House fact sheet and bill text for the GENIUS Act (July 18, 2025).
- EU regulation and supervision: Central Bank of Ireland MiCA explainer and ESMA statement on non-compliant stablecoins.
- Issuer transparency: Circle reserve disclosures (USDC/EURC) and Tether Q2 2025 attestation.
- Risks and lessons: BIS Annual Report chapter on next-gen monetary system; TerraUSD collapse analyses.
- Payments adoption: Visa stablecoin settlement expansion and analytics note.
