A stablecoin is a cryptocurrency whose value is pegged to a stable asset, most often the US dollar. Bitcoin and ether can rise or fall by double-digit percentages in a month, while 1 USDT or 1 USDC aims to be worth about one dollar at all times. That is why stablecoins have become the “working money” of the crypto economy: people park funds in them between trades, get paid in them, send money abroad and use them across DeFi.
But “stable” does not mean “risk-free”. Behind every stablecoin is a specific backing mechanism, issuer or smart contract, and those determine whether the peg holds in a crisis. In this article we explain the types of stablecoins, how USDT, USDC and DAI differ (along with USDS, PYUSD and others), how the dollar peg works, which risks matter, and how stablecoins are regulated in 2026.
- What is a stablecoin
- What stablecoins are used for
- Types of stablecoins by backing
- Popular stablecoins compared: table
- USDT (Tether)
- USDC (Circle)
- DAI and USDS (Sky)
- How the dollar peg is maintained
- Stablecoin risks
- Regulation: MiCA and the GENIUS Act
- How to choose and get a stablecoin
- FAQ
- Conclusion
- Sources
What is a stablecoin
A stablecoin is a token designed to keep a stable price relative to a reference asset. Usually that is the US dollar; less often it is the euro, gold or a basket of assets. Technically, most stablecoins are ordinary tokens on blockchains: ERC-20 on Ethereum, TRC-20 on TRON, SPL on Solana and so on. You can hold them in any wallet that supports the relevant network and send them like any other cryptocurrency.
The key difference from “regular” crypto is where the value comes from. Bitcoin’s price is set by market supply and demand. A stablecoin’s price rests on a backing mechanism: reserves in dollars and government bonds, collateral in other cryptocurrencies, or an algorithm that adjusts supply. That mechanism determines how reliable and how risky a given token is.
If you are new to crypto, it helps to cover the basics first in what is cryptocurrency.
What stablecoins are used for
- Protection from volatility. Traders lock in results in a stablecoin without withdrawing to a bank.
- Transfers and payments. Stablecoins can be sent anywhere in the world within minutes, on weekends and holidays, for just a network fee.
- The base trading pair. Most pairs on exchanges and exchangers are quoted against USDT or USDC.
- DeFi. Stablecoins power lending protocols, liquidity pools and decentralized exchanges. Learn more in what is DeFi.
- Access to the dollar. In countries with unstable local currencies, stablecoins are a way to hold savings in dollar terms.
Types of stablecoins by backing
Fiat-backed
The most common type. The issuer mints tokens and holds reserves in cash, bank deposits and short-term government bonds. Users verified by the issuer can redeem tokens for dollars at 1:1. Examples: USDT, USDC, PYUSD. The upside is simplicity and deep liquidity; the downside is that you must trust the issuer and its banks, and funds can be frozen.
Crypto-backed
Tokens are minted against other crypto assets via smart contracts. To offset collateral volatility, they use overcollateralization: for example, minting 100 dollars’ worth of stablecoin requires locking collateral worth significantly more. If the collateral price falls, the position is liquidated. Example: DAI. The upside is on-chain transparency; the downside is a complex mechanism and dependence on collateral markets.
Commodity-backed
Pegged to the value of a physical asset, most often gold. Each token corresponds to a set amount of metal held in a vault. Examples: PAX Gold (PAXG) and Tether Gold (XAUT). Their price is stable relative to gold, not to the dollar.
Algorithmic and synthetic
Algorithmic stablecoins try to hold the peg through minting and burning rules without full reserves. The most famous failure is TerraUSD (UST), which lost its peg in May 2022 and collapsed, taking the entire Terra ecosystem with it. There are also so-called synthetic dollars that maintain value through hedging positions on derivatives markets — a separate category with its own risks.
Popular stablecoins compared: table
The table offers a qualitative comparison without market-cap figures, which change constantly.
| Stablecoin | Issuer or protocol | Launched | Backing | Address freezing | Main networks |
|---|---|---|---|---|---|
| USDT | Tether | 2014 | Fiat reserves, mostly US Treasury bills | Possible | TRON, Ethereum, Solana and others |
| USDC | Circle | 2018 | Cash and short-term US Treasuries | Possible | Ethereum, Solana, Base, Arbitrum and others |
| DAI | Maker protocol, now Sky | 2017 | Overcollateralized crypto and other protocol assets | No freeze function in the token contract | Ethereum and L2 networks |
| USDS | Sky | 2024 | Same backing systеm as DAI, convertible 1:1 | Check the protocol documentation | Ethereum and several other networks |
| PYUSD | Paxos for PayPal | 2023 | Cash and cash equivalents | Possible | Ethereum, Solana and others |
USDT (Tether)
USDT is one of the oldest and most widely used stablecoins. The project launched in 2014; tokens were originally issued on Bitcoin via the Omni Layer protocol, and USDT later spread to Ethereum, TRON, Solana and many other networks. Today USDT is the most common base currency for trading pairs and for transfers between exchanges.
Tether publishes quarterly reserve reports (attestations) from an independent accounting firm. According to the company, short-term US Treasury bills make up the core of its reserves. Critics pointed to insufficient transparency for years, and in 2021 Tether settled with US authorities (the New York Attorney General and the CFTC) over earlier statements about its reserves.
An important detail: USDT contracts allow the issuer to freeze addresses. Tether uses this at the request of law enforcement and when it finds links to crime. For users, this means funds received from a dubious source can be blocked. We explain how to check addresses and why it matters in AML checks in crypto. For a detailed overview of networks, see USDT networks.
USDC (Circle)
USDC was launched in 2018 by the Centre consortium, founded by Circle and Coinbase; since 2023 the stablecoin has been fully governed by Circle. USDC is positioned as a regulated, transparent stablecoin: Circle regularly publishes data on its reserves, held in cash and short-term US Treasuries.
USDC’s history shows that even a “reliable” stablecoin can temporarily lose its peg. In March 2023, after the collapse of Silicon Valley Bank, which held part of Circle’s reserves, USDC briefly traded well below one dollar. Once regulators guaranteed the bank’s deposits, the peg recovered within a few days.
USDC runs on many networks, including Ethereum, Solana, Base and Arbitrum; to move it between chains, Circle offers its own protocol, CCTP, which burns tokens on one network and mints them on another. More details in USDC networks. Circle also issues a euro stablecoin, EURC.
DAI and USDS (Sky)
DAI is a decentralized stablecoin launched in 2017 by the MakerDAO protocol. Users open positions (vaults), deposit collateral and mint DAI. If the collateral value falls below a threshold, the position is liquidated, which keeps the systеm backed. Over time, DAI’s backing expanded beyond crypto assets to inсlude other stablecoins and so-called real-world assets (RWA).
In August 2024, MakerDAO rebranded as Sky and launched a new stablecoin, USDS. DAI can be converted to USDS at 1:1 through the protocol’s converter, while DAI continues to exist and circulate in parallel. For users these are two forms of the same ecosystem: pick whichever the apps you use support.
How the dollar peg is maintained
For fiat-backed stablecoins, the key mechanism is minting and redemption plus arbitrage. If USDC trades at 0.99 dollars, large players buy it cheaply and redeem it with the issuer for 1 dollar, pocketing the difference and pushing the price back to 1. If the token trades above a dollar, participants deposit dollars with the issuer, receive new tokens and sell them on the market. This arbitrage works as long as the market believes the reserves are real and accessible.
Crypto-backed stablecoins rely on overcollateralization, liquidations, borrowing rates and special modules that let users swap the token for other stablecoins at a fixed rate. Algorithmic systems rely only on confidence in their rules, and in a mass exit that confidence can vanish very quickly.
Keep in mind that tiny deviations of fractions of a cent are normal on individual venues and in liquidity pools. The warning sign is a persistent, widening deviation, especially alongside news of problems with the issuer or collateral.
Stablecoin risks
- Issuer and reserve risk. A fiat-backed stablecoin is only as reliable as its reserves, custodian banks and reporting.
- Depeg. A bank crisis, a crash in collateral or panic can break the peg temporarily or for good.
- Frozen funds. Centralized issuers can block an address, and exchanges can hold a deposit because of an AML check.
- Smart contract risk. Bugs in protocol or bridge code can lead to losses.
- Regulatory risk. Rules for issuers change, and some stablecoins may become unavailable on platforms in certain jurisdictions.
- Network mistakes. Sending a token on the wrong network is one of the most common ways to lose funds.
Stablecoins are not bank deposits: they are not covered by government deposit insurance schemes. Spreading holdings across several reputable stablecoins reduces dependence on a single issuer.
Regulation: MiCA and the GENIUS Act
The European uniоn’s MiCA regulation applies to stablecoins. Rules for e-money tokens and asset-referenced tokens took effect on 30 June 2024. An issuer whose stablecoin is offered in the EU must be licensed and meet reserve and redemption requirements. In practice, several platforms serving EU users restricted trading of stablecoins that do not comply with MiCA, including USDT.
In the United States, the GENIUS Act was signed into law on 18 July 2025 — the first federal framework for payment stablecoins. It requires issuers to hold at least one dollar of reserves for every dollar of stablecoins issued, disclose reserve composition and comply with anti-money-laundering laws, and it defines who may issue such tokens. The law also explicitly states that payment stablecoins are not government-insured.
Rules in other countries vary and continue to evolve, so check a stablecoin’s status in your jurisdiction before relying on it.
How to choose and get a stablecoin
A practical sequence:
- Define your purpose. For exchange trading, pick the stablecoin with the deepest liquidity there; for DeFi, the one your protocol supports; for holding, the one whose reserves and reporting you trust most.
- Choose a network. Consider fees, whether the recipient supports it and whether you hold the network coin for gas.
- Verify the token contract via the issuer’s official website or a block explorer, so you do not receive a fake with the same ticker.
- Get the stablecoin — buy it on an exchange, swap another cryptocurrency or receive a transfer.
- Make a test transfer if you are using a network or service for the first time.
If you already hold crypto and want to lock in its dollar value, just swap it for a stablecoin. On RubyCash you can do this without registration: choose the pair, enter a receiving address on the right network and get the tokens straight to your own wallet.
Exchange BTC to USDT
FAQ
It is a cryptocurrency whose price is pegged to a stable asset, usually the US dollar. One token aims to be worth about one dollar at all times, so it is used for transfers, payments and holding funds between trades.
They are different stablecoins from different issuers: Tether issues USDT and Circle issues USDC. They differ in reporting approach, reserve composition, regulatory status in various countries and supported networks, although both aim to be worth one dollar.
Yes. Examples inсlude USDC’s brief drop in March 2023 after the collapse of Silicon Valley Bank and the complete collapse of the algorithmic TerraUSD in May 2022. Reliability depends on the backing mechanism and trust in the issuer.
A stablecoin itself is not designed to rise in price. Some platforms and DeFi protocols offer yield, but it always comes with extra risks, from platform bankruptcy to smart contract bugs, and rates change constantly.
No. Stablecoins are not covered by government deposit insurance, as the US GENIUS Act explicitly states. Holder protection depends on the quality of reserves and the issuer’s rules.
DAI is the Maker protocol’s decentralized, collateral-backed stablecoin. In 2024 the protocol rebranded as Sky and launched USDS, into which DAI can be converted 1:1; both tokens continue to exist side by side.
Issuers of centralized stablecoins can block addresses at the request of law enforcement or when funds are linked to crime. Exchanges can also hold a deposit after an AML check if the funds came from a suspicious source.
The one both sender and recipient support on the same network. In practice, the choice comes down to available networks, fees and where the recipient will use the funds next.
Conclusion
Stablecoins are the foundation of today’s crypto economy: people trade with them, send money, store value and use DeFi. But behind the same one-dollar price lie different mechanisms — fiat reserves, crypto collateral or algorithms — each with its own risk profile.
A sensible approach is to understand who issues the token and what backs it, keep an eye on its regulatory status in your country, check the network and contract before sending, and avoid keeping all your funds in a single stablecoin.
Treated as a convenient tool rather than a bank deposit, stablecoins genuinely simplify working with crypto and let you wait out market volatility calmly.