Curious about stablecoins and how they fit into the crypto world? This guide breaks down everything you need to know — what is a stablecoin, how it’s used for payments, trading, and more. And if you’re a beginner or just looking to stay informed, here’s your crash course on crypto’s most stable asset.
What Are Stablecoins?
Stablecoins are digital assets with a fixed value. Their price is tied to something stable, like the U.S. dollar, gold, or other financial assets.
When Bitcoin launched in 2009, it gave people a way to send money without relying on banks. But its price changes fast and often. That’s a problem for anyone trying to use it for daily spending.
Btw, here’s what you can actually buy with Bitcoin today.
Ethereum improved on Bitcoin’s model. It introduced smart contracts and helped launch decentralized finance (DeFi). But its token, Ether (ETH), remains volatile.
Stablecoins were built to fix that. They offer a middle ground: the flexibility of crypto without the instability. In short, stablecoins maintain value you can rely on.
How Are Stablecoins Different from Other Cryptocurrencies?
Stablecoins are designed for stability. They peg their value to a stable asset, such as a fiat currency or a commodity. This makes them less prone to price swings.
Regular cryptocurrencies can gain or lose value fast. That makes them tough to use for payments or savings. Stablecoins provide a reliable alternative. You can send or hold them without worrying about sudden losses.
For example, 1 USDT (Tether) is usually equal to 1 USD. That’s because the company claims to back every token with cash or cash equivalents. This model helps it keep a steady value.
Most cryptocurrencies don’t have this kind of backing. Their price depends on market supply and demand. That’s why stablecoins stand out — they offer consistency in a space known for chaos.
Do We Need Stablecoins? What Is the Point of Them?
Crypto’s unpredictability stands in stark contrast to fiat money. You see fiat prices shifting gradually. In crypto, prices change drastically day-to-day. This constant fluctuation affects your ability to use digital currencies for daily needs.
This is where stablecoins come in. Stablecoins aim to fix this problem by tying their value to something more predictable, like fiat currency. They bring an element of consistency to a market known for chaos. Because of this, they’re becoming a core part of the crypto economy.
You’ll often see traders moving into stablecoins when markets get shaky. They use them as a safe zone to avoid price volatility without leaving the crypto ecosystem. If they wanted complete stability, they’d exit into fiat. But most stay in stablecoins because they plan to re-enter the market — just at a better time.
Stablecoins also open the door for more practical crypto use cases. You can pay for goods, store value, or even earn yield — without worrying that your balance might crash overnight. That’s a big deal for adoption.
The data backs this up. According to a report titled The State of Stablecoins 2025: Supply, Adoption & Market Trends, the number of active stablecoin wallets jumped from 19.6 million in February 2024 to over 30 million a year later. That’s a 53% year-over-year increase — clear proof that demand for stable, reliable digital currencies is growing fast.
How Do Stablecoins Stay Stable?
Stablecoins stay stable by pegging their value to something that doesn’t swing much — usually fiat currencies like the U.S. dollar or commodities like gold. This peg gives them price stability and makes them easier to use.
But stability isn’t guaranteed. Sometimes, stablecoins deviate from their peg. This is called depegging — when a stablecoin’s price drops below or rises above the value of the asset it’s supposed to track.
Depeg events happen more often than you think. A 2023 report recorded 609 depegging instances in a single year. But not all of them are serious.
Some depegs last only a few minutes or hours. A 1% drift on either side of the peg is considered normal, especially when trading volumes spike or liquidity gets tight. The platform where the stablecoin is traded also matters — prices on smaller exchanges may vary more than those on large platforms.
More extreme cases do happen. In early 2024, USDC briefly fell to $0.74 on Binance during a market panic, before recovering quickly. Even top-tier stablecoins aren’t immune to sudden shocks.
Still, depegs don’t always mean something is wrong. They can be caused by many factors — from technical glitches to broader market contagion. A brief depeg doesn’t mean a stablecoin is failing. Often, it just means the market needs time to rebalance.
There are also different types of stablecoins — some backed by fiat reserves, others by crypto or algorithms. Each design comes with its own strengths and risks. But across all types, no stablecoin can stay perfectly pegged at all times. That’s just part of how markets work.
The important thing is how the stablecoin reacts. A quick return to the peg, strong liquidity, and transparent backing are key signs of a healthy project — even in the face of temporary instability.
How Many Stablecoins Are There?
As of 2025, there are more than 200 stablecoins in circulation, ranging from well-known assets like USDT and USDC to regional and sector-specific tokens.
Stablecoins pie chart. Source: DeFiLlama
Stablecoins Market Cap
As of April 2025, the total market capitalization of stablecoins has reached approximately $233.54 billion. Tether (USDT) continues to lead the sector with a dominant market share of 62%, underscoring its significant influence in the stablecoin ecosystem.
Stablecoins market cap throughout the years. Source: DeFiLlama
Different Types of Stablecoins
Not all stablecoins work the same way. Let’s break down the four main types of stablecoins, each using a different method to stay stable.
Fiat-Collateralized Stablecoins
Fiat-backed stablecoins keep their value by holding reserves of fiat currencies like the U.S. dollar. These reserves are held by custodians — usually banks — and are often audited to ensure transparency.
This model is simple and widely used, but it relies on trust in centralized institutions to hold and manage the reserves.
Popular examples include Tether (USDT) and TrueUSD (TUSD). Both are pegged 1:1 to the U.S. dollar and backed by actual dollar reserves. As of June 2024, Tether had a market cap of over $144 billion, making it the third-largest cryptocurrency by market value.
Understanding how fiat and crypto differ helps explain why this model exists — and why trust in the issuer matters.
Crypto-Collateralized Stablecoins
Crypto-collateralized stablecoins use other cryptocurrencies as collateral. Because crypto assets are volatile, these stablecoins are usually overcollateralized to protect against sharp price drops.
For example, if you want to mint $1 million worth of a stablecoin, you might need to lock up $2 million worth of ETH. This extra cushion helps maintain the peg even if the reserve value falls.
Dai (DAI) is a well-known example. It’s pegged to the U.S. dollar but backed by a mix of cryptocurrencies — primarily Ethereum — worth about 155% of the total DAI supply.
Algorithmic Stablecoins
Algorithmic stablecoins, also known as seigniorage style stablecoins, don’t always hold reserves. Instead, they rely on code. A preset algorithm adjusts the stablecoin’s supply to keep its price steady.
These coins use smart contracts — self-executing programs that automatically manage the supply. When demand rises, the algorithm mints more coins. When demand falls, it burns coins to reduce supply. No collateral is involved.
The idea isn’t new. Central banks also manage money supply without holding a fixed reserve. But there’s a major difference — banks like the U.S. Federal Reserve operate with legal authority and transparent policies. That gives them far more credibility during market stress.
Algorithmic stablecoins don’t have that safety net. In a crisis, trust in the system can disappear fast. That’s exactly what happened to TerraUSD (UST) in May 2022. The coin lost its peg, falling over 60% in one day, while its paired token Luna crashed more than 80%. The collapse wiped out over $60 billion and exposed the risks of relying purely on algorithms.
Commodity-Backed Stablecoins
Commodity-backed stablecoins are tied to physical goods like gold, silver, or oil. They often fall under the broader category of fiat-collateralized coins but are backed by tangible assets instead of currencies.
These stablecoins store their commodities using third-party custodians or invest in instruments that represent those commodities.
One well-known example is Tether Gold (XAUt). It’s backed by physical gold stored in Switzerland. Holders can even choose to redeem the token for a real gold bar, though they’ll need to cover storage and delivery fees.
Popular Stablecoins You Should Know
Let’s go over the most widely used stablecoins in the crypto space. Each one follows a different model and runs on multiple blockchains.
This is one of the most important things to understand — stablecoins exist on different networks, and the same token can behave differently depending on where it lives. For example, USDT exists on Ethereum (as an ERC-20 token) and Tron (as a TRC-20 token). This flexibility is great because it allows fast, cheap transfers when you pick the right network. But it can also be confusing. If you send USDT from Tron to an Ethereum-only wallet, you could lose access to your funds. Always check which version of the token you’re using.
USDT (Tether)
USDT is the world’s most used stablecoin. It launched in 2014 under the name “Realcoin,” then rebranded to Tether. You’ll find it on almost every exchange.
Most traders use USDT to move money quickly between platforms. It helps them take advantage of price gaps — this is called arbitrage. But it’s not just for traders.
In Argentina, where inflation passed 140% in 2023, people turned to USDT to protect their savings. It became a simple way to store value and send money abroad — no banks needed.
Tether has had its share of controversy. The company behind it, Tether Ltd., spent 22 months battling New York’s Attorney General. They were accused of covering an $850 million loss using Bitfinex funds. In 2021, they settled, paid $18.5 million, and agreed to publish regular reserve reports.
Still, USDT remains the top fiat-backed stablecoin by volume. It’s fast, liquid, and accepted everywhere — even if trust in its reserves still sparks debate.
USDC (USD Coin)
USDC is the cleaner, more transparent cousin of USDT. It launched in 2018, created by Circle in partnership with Coinbase. It’s pegged 1:1 to the U.S. dollar and backed by fully reserved cash and short-term treasuries.
You get more transparency with USDC. It’s regulated, audited, and supported by major players like Goldman Sachs and Baidu. Circle issues the coin and leads its development.
Circle also leads when it comes to regulation. In 2024, it became the first stablecoin issuer to comply with MiCA, the EU’s new crypto law. It secured a license in France, allowing it to issue both USDC and EURC legally across Europe.
This move gave USDC a leading edge. Major exchanges like Coinbase, Kraken, and Crypto.com started removing stablecoins that don’t meet MiCA’s standards, but USDC stayed — and strengthened its foothold in the region.
Read also: USDT vs. USDC.
BUSD (Binance USD)
BUSD is Binance’s dollar-pegged stablecoin. It launched in 2019 through a partnership with Paxos. It’s fully backed, regulated by the NYDFS, and audited monthly.
Traders loved BUSD because it worked perfectly within Binance’s ecosystem. It became the default trading pair for dozens of assets. You could use it on Ethereum or Binance’s BNB Chain, saving on fees.
But Binance stopped minting new BUSD in early 2024. You can still trade it, and it’s still accepted in most BNB-based apps — just know that it’s being slowly phased out.
DAI
DAI is different. It’s a decentralized stablecoin created by MakerDAO. It runs on Ethereum, with no central company controlling it. Instead of holding dollars in a bank, DAI uses smart contracts and crypto as collateral.
When you lock up ETH or other assets in a Maker Vault, you generate DAI. The system automatically manages supply. If the price drops, it burns tokens. If it rises, it mints more. That’s how it holds the peg.
DAI gives you stability without central control. It’s perfect if you want to avoid relying on traditional institutions. You’ll see DAI everywhere in DeFi — Aave, Compound, Curve, and more.
And yes, you can spend DAI in the real world. Monolith once offered a Visa card that let Europeans spend DAI like cash. It’s a strong alternative if you believe in decentralized money.
Stablecoin Regulation across the World
Stablecoins have become a global regulatory focus. Their rapid growth and use in payments, trading, and DeFi have pushed lawmakers to balance innovation with consumer protection, financial stability, and anti-money laundering rules.
The European Union (EU)
The EU introduced the Markets in Crypto-Assets (MiCA) regulation to set common rules for crypto assets, including stablecoins. MiCA’s stablecoin rules came into effect on June 30, 2024, with additional rules for service providers starting December 20, 2024.
MiCA defines two stablecoin types:
- E-money tokens (EMTs) – pegged to one fiat currency (e.g. USD, EUR), used as payment.
- Asset-referenced tokens (ARTs) – tied to baskets of currencies, crypto, or commodities, used more as a store of value or exchange.
Issuers of both must be licensed, publish whitepapers, manage reserves properly, and guarantee redemption rights. Larger, “significant” stablecoins face tougher oversight from the European Banking Authority (EBA).
Circle’s USDC is the first stablecoin approved under MiCA. Others like USDT risk being delisted from EU platforms if they don’t comply.
Singapore
The Monetary Authority of Singapore (MAS) finalized its stablecoin framework in 2023. It applies to single-currency stablecoins (SCS) pegged to either the Singapore Dollar or major G10 currencies. Issuers must meet strict rules on reserve backing, capital, redemptions, and disclosures. Compliant issuers can earn “MAS-regulated” status.
Hong Kong
Hong Kong is building its own framework for stablecoin issuers. While final legislation is still underway, the Hong Kong Monetary Authority (HKMA) has launched a regulatory sandbox. It lets selected projects test their models and shape the upcoming rules. Three pilot projects were accepted in July 2024.
Japan
Japan was early to regulate stablecoins, allowing banks and licensed companies to issue fiat-backed tokens. Issuers must meet strict reserve requirements. While firms like MUFG are exploring the space, local adoption is still small. Japan’s FSA is reviewing its framework to align with international standards.
United States
The U.S. is still debating how to regulate stablecoins. Despite the popularity of USDC and USDT, there’s no federal law covering their issuance. Lawmakers are pushing new bills to bring clarity, focusing on reserve transparency, consumer protection, and money laundering safeguards. A draft stablecoin bill passed committee review in 2023, but progress has stalled.
What Are Stablecoins Used For?
Stablecoins are more than just digital dollars. Their stability makes them incredibly useful in real-world scenarios — from trading and payments to supporting financial systems in unstable economies.
Cross-Border Payments
Stablecoins allow for fast and low-cost international transfers without relying on traditional banking systems. They’re accessible 24/7, settle quickly, and don’t require approval from central authorities. Migrant workers and businesses use them to send money across borders, especially where banking is slow or expensive.
Hedging Against Market Volatility
Crypto markets are known for their ups and downs. Stablecoins help users maintain a stable value during uncertain times. Traders, investors, and protocols often move into stablecoins when volatility spikes to protect capital and avoid sudden losses in portfolio value.
Preserving Value in Economically Unstable Regions
In countries hit by hyperinflation or currency collapse, people turn to stablecoins as a store of value. With limited access to the global financial system, stablecoins offer an alternative. In Argentina, for example, people use USDT to escape peso devaluation. Stablecoins also improve financial inclusion by giving unbanked individuals access to digital money.
Trading
Stablecoins play a core role in crypto trading. They allow users to quickly move in and out of positions without converting back to fiat. This helps avoid fees and delays, especially during price fluctuations. Most major exchanges use stablecoins as base pairs in spot and futures markets.
Payments
Stablecoins enable fast and cost-effective payments — no matter the location. Some businesses and financial institutions now accept stablecoins for payroll, remittances, and online purchases. Their stability makes them ideal for transactions where price consistency matters.
Decentralised Finance (DeFi) Applications
Stablecoins are the backbone of DeFi. You can lend, borrow, farm yield, or provide liquidity — all without touching volatile assets. Protocols like Aave, Compound, and Curve rely heavily on stablecoins for their core functions, making the ecosystem more predictable and efficient.
The Pros and Cons of Stablecoins
| Pros | Cons |
| Fast and low-cost transactions | Risk of de-pegging |
| Global access without banks | Dependence on issuer transparency |
| Works across platforms and apps | Centralization concerns |
| Stable value in volatile markets | Regulatory uncertainty |
| Useful for trading and DeFi | Reserve asset risks |
Advantages
Stablecoins have a number of key advantages, and keeping these in mind can help you make more informed decisions.
Super Quick Transfers
Stablecoin transactions happen in seconds, not days. Compared to traditional banking systems, this is a major advantage. Whether you’re sending money across the globe or swapping assets on an exchange, stablecoins offer lightning-fast transfers. Their speed makes them a reliable medium for everything from remittances to real-time trades. As a medium of exchange, stablecoins combine speed with global reach.
Global Accessibility
People in underserved regions use stablecoins to send and receive money without relying on local banks. With just a smartphone, users can access crypto wallets and stablecoin platforms. This makes stablecoins globally accessible and appealing across economic classes.
Easy to Use on Any App
Stablecoins are easy to use and work on many platforms — centralized exchanges, DeFi apps, and wallets. You can buy them via bank transfer or even a crypto credit card. They’re flexible, fast, and simple to move around. This makes them ideal for users who want a familiar, liquid, and widely accepted asset across multiple apps and services.
Safer Than Traditional Payments
Stablecoins use blockchain technology, which makes them secure and tamper-proof. Many stablecoins are backed by fiat currency, providing confidence in their value. They’re also more private than traditional banking options and harder to block or censor.
Cost-Efficient Transfers
Sending money abroad through banks often involves high fees. With stablecoins, those fees drop dramatically. The reason? There’s no middleman. Stablecoins use blockchain rails to process transactions directly, resulting in significantly lower transaction fees. This is especially important for users making frequent international transfers or micropayments.
Disadvantages
It’s also important to stay mindful of some potential drawbacks. Here’s what you need to know.
Reserve Risk and Transparency
Stablecoins are tied to reserve assets like fiat or crypto. If those reserves are mismanaged or not properly disclosed, the value of the stablecoin can break. This undermines trust and defeats the point of using a stablecoin to avoid risk. Always check how well the stablecoin is backed and whether it’s truly tied to a fiat currency.
Lack of Decentralization
Most stablecoin issuers are private companies. That gives them control over supply, reserves, and policy. While convenient, this goes against the core values of decentralized finance. If the issuer isn’t transparent or solvent, users are exposed to risks — including blacklisting or frozen funds.
Peg Instability
Stablecoins are supposed to keep a fixed price — but that’s not guaranteed. If there’s a shock to the market, problems with the underlying asset, or a loss of confidence, the stablecoin can drop below its target. This is called de-pegging. It challenges the coin’s ability to maintain price stability, especially in times of stress. TerraUSD’s collapse is the clearest example of what can go wrong.
Should You Use Stablecoins?
Stablecoins are useful if you want to avoid crypto volatility, send money fast, or access DeFi tools. They’re easy to use, often cheaper than banks, and available worldwide.
But like any asset, they carry risks. Do your research and choose well-regulated, transparent stablecoins to stay on the safe side.
How to Buy Stablecoins?
Buying stablecoins is simple — you don’t need a trading background or a crypto wallet full of coins to start. You can buy them with a credit card, bank transfer, or even Apple Pay.
One of the easiest ways to buy stablecoins is through Changelly. It’s a beginner-friendly platform that lets you purchase top stablecoins like USDT, USDC, or DAI in just a few steps. No complex trading interface, no hidden fees.
Need to sell stablecoins later? You can do that on Changelly too — instantly swap your stablecoins for crypto or fiat, all in one place.
Final Words
You now understand what stablecoins are and why they matter. They give you a way to use crypto without big price swings. You can store value, send money, or trade safely. They work fast, cost less, and don’t need a bank. You just need a wallet and internet. Some are backed by cash, others by crypto or code. Always check how stablecoins keep their value. Choose ones with clear rules and strong backing. That helps you avoid risk and stay protected.
FAQ
Are Stablecoins the Same as Regular Money?
Not exactly. Stablecoins are digital currencies designed to mimic fiat money like the U.S. dollar. While they aim for price stability, they’re not legal tender — meaning governments don’t officially recognize them as currency.
How Do I Know That A Stablecoin Is Safe?
Check if it’s backed by reserves, audited regularly, and issued by a licensed company. Look for transparency reports and real-time data. Trustworthy stablecoins publish details about their holdings and operations.
Can Stablecoins Lose Their Value?
Yes. Stablecoins can depeg if reserves are mismanaged, demand shifts, or confidence drops. Most stay close to their peg, but sharp market events — like with TerraUSD — show that risk exists.
Do I Need a Bank Account to Use Stablecoins?
No. You can use stablecoins with only a crypto wallet. That’s why they’re so useful for people without access to banks — all you need is a smartphone and internet.
What Happens If Regulations Change?
If rules shift, some stablecoins may be restricted or delisted from platforms. However, regulated issuers like Circle (USDC) are preparing for this by aligning with global frameworks like MiCA in the EU.
Is Bitcoin a Stablecoin?
No. Bitcoin is not a stablecoin. It’s a decentralized digital asset with high price volatility. Stablecoins are designed to stay at a fixed value — Bitcoin is not.
Disclaimer: Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.
Curious about stablecoins and how they fit into the crypto world? This guide breaks down everything you need to know — what is a stablecoin, how it’s used for payments, trading, and more. And if you’re a beginner or just looking to stay informed, here’s your crash course on crypto’s most stable asset.
What Are Stablecoins?
Stablecoins are digital assets with a fixed value. Their price is tied to something stable, like the U.S. dollar, gold, or other financial assets.
When Bitcoin launched in 2009, it gave people a way to send money without relying on banks. But its price changes fast and often. That’s a problem for anyone trying to use it for daily spending.
Btw, here’s what you can actually buy with Bitcoin today.
Ethereum improved on Bitcoin’s model. It introduced smart contracts and helped launch decentralized finance (DeFi). But its token, Ether (ETH), remains volatile.
Stablecoins were built to fix that. They offer a middle ground: the flexibility of crypto without the instability. In short, stablecoins maintain value you can rely on.
How Are Stablecoins Different from Other Cryptocurrencies?
Stablecoins are designed for stability. They peg their value to a stable asset, such as a fiat currency or a commodity. This makes them less prone to price swings.
Regular cryptocurrencies can gain or lose value fast. That makes them tough to use for payments or savings. Stablecoins provide a reliable alternative. You can send or hold them without worrying about sudden losses.
For example, 1 USDT (Tether) is usually equal to 1 USD. That’s because the company claims to back every token with cash or cash equivalents. This model helps it keep a steady value.
Most cryptocurrencies don’t have this kind of backing. Their price depends on market supply and demand. That’s why stablecoins stand out — they offer consistency in a space known for chaos.
Do We Need Stablecoins? What Is the Point of Them?
Crypto’s unpredictability stands in stark contrast to fiat money. You see fiat prices shifting gradually. In crypto, prices change drastically day-to-day. This constant fluctuation affects your ability to use digital currencies for daily needs.
This is where stablecoins come in. Stablecoins aim to fix this problem by tying their value to something more predictable, like fiat currency. They bring an element of consistency to a market known for chaos. Because of this, they’re becoming a core part of the crypto economy.
You’ll often see traders moving into stablecoins when markets get shaky. They use them as a safe zone to avoid price volatility without leaving the crypto ecosystem. If they wanted complete stability, they’d exit into fiat. But most stay in stablecoins because they plan to re-enter the market — just at a better time.
Stablecoins also open the door for more practical crypto use cases. You can pay for goods, store value, or even earn yield — without worrying that your balance might crash overnight. That’s a big deal for adoption.
The data backs this up. According to a report titled The State of Stablecoins 2025: Supply, Adoption & Market Trends, the number of active stablecoin wallets jumped from 19.6 million in February 2024 to over 30 million a year later. That’s a 53% year-over-year increase — clear proof that demand for stable, reliable digital currencies is growing fast.
How Do Stablecoins Stay Stable?
Stablecoins stay stable by pegging their value to something that doesn’t swing much — usually fiat currencies like the U.S. dollar or commodities like gold. This peg gives them price stability and makes them easier to use.
But stability isn’t guaranteed. Sometimes, stablecoins deviate from their peg. This is called depegging — when a stablecoin’s price drops below or rises above the value of the asset it’s supposed to track.
Depeg events happen more often than you think. A 2023 report recorded 609 depegging instances in a single year. But not all of them are serious.
Some depegs last only a few minutes or hours. A 1% drift on either side of the peg is considered normal, especially when trading volumes spike or liquidity gets tight. The platform where the stablecoin is traded also matters — prices on smaller exchanges may vary more than those on large platforms.
More extreme cases do happen. In early 2024, USDC briefly fell to $0.74 on Binance during a market panic, before recovering quickly. Even top-tier stablecoins aren’t immune to sudden shocks.
Still, depegs don’t always mean something is wrong. They can be caused by many factors — from technical glitches to broader market contagion. A brief depeg doesn’t mean a stablecoin is failing. Often, it just means the market needs time to rebalance.
There are also different types of stablecoins — some backed by fiat reserves, others by crypto or algorithms. Each design comes with its own strengths and risks. But across all types, no stablecoin can stay perfectly pegged at all times. That’s just part of how markets work.
The important thing is how the stablecoin reacts. A quick return to the peg, strong liquidity, and transparent backing are key signs of a healthy project — even in the face of temporary instability.
How Many Stablecoins Are There?
As of 2025, there are more than 200 stablecoins in circulation, ranging from well-known assets like USDT and USDC to regional and sector-specific tokens.
Stablecoins pie chart. Source: DeFiLlama
Stablecoins Market Cap
As of April 2025, the total market capitalization of stablecoins has reached approximately $233.54 billion. Tether (USDT) continues to lead the sector with a dominant market share of 62%, underscoring its significant influence in the stablecoin ecosystem.
Stablecoins market cap throughout the years. Source: DeFiLlama
Different Types of Stablecoins
Not all stablecoins work the same way. Let’s break down the four main types of stablecoins, each using a different method to stay stable.
Fiat-Collateralized Stablecoins
Fiat-backed stablecoins keep their value by holding reserves of fiat currencies like the U.S. dollar. These reserves are held by custodians — usually banks — and are often audited to ensure transparency.
This model is simple and widely used, but it relies on trust in centralized institutions to hold and manage the reserves.
Popular examples include Tether (USDT) and TrueUSD (TUSD). Both are pegged 1:1 to the U.S. dollar and backed by actual dollar reserves. As of June 2024, Tether had a market cap of over $144 billion, making it the third-largest cryptocurrency by market value.
Understanding how fiat and crypto differ helps explain why this model exists — and why trust in the issuer matters.
Crypto-Collateralized Stablecoins
Crypto-collateralized stablecoins use other cryptocurrencies as collateral. Because crypto assets are volatile, these stablecoins are usually overcollateralized to protect against sharp price drops.
For example, if you want to mint $1 million worth of a stablecoin, you might need to lock up $2 million worth of ETH. This extra cushion helps maintain the peg even if the reserve value falls.
Dai (DAI) is a well-known example. It’s pegged to the U.S. dollar but backed by a mix of cryptocurrencies — primarily Ethereum — worth about 155% of the total DAI supply.
Algorithmic Stablecoins
Algorithmic stablecoins, also known as seigniorage style stablecoins, don’t always hold reserves. Instead, they rely on code. A preset algorithm adjusts the stablecoin’s supply to keep its price steady.
These coins use smart contracts — self-executing programs that automatically manage the supply. When demand rises, the algorithm mints more coins. When demand falls, it burns coins to reduce supply. No collateral is involved.
The idea isn’t new. Central banks also manage money supply without holding a fixed reserve. But there’s a major difference — banks like the U.S. Federal Reserve operate with legal authority and transparent policies. That gives them far more credibility during market stress.
Algorithmic stablecoins don’t have that safety net. In a crisis, trust in the system can disappear fast. That’s exactly what happened to TerraUSD (UST) in May 2022. The coin lost its peg, falling over 60% in one day, while its paired token Luna crashed more than 80%. The collapse wiped out over $60 billion and exposed the risks of relying purely on algorithms.
Commodity-Backed Stablecoins
Commodity-backed stablecoins are tied to physical goods like gold, silver, or oil. They often fall under the broader category of fiat-collateralized coins but are backed by tangible assets instead of currencies.
These stablecoins store their commodities using third-party custodians or invest in instruments that represent those commodities.
One well-known example is Tether Gold (XAUt). It’s backed by physical gold stored in Switzerland. Holders can even choose to redeem the token for a real gold bar, though they’ll need to cover storage and delivery fees.
Popular Stablecoins You Should Know
Let’s go over the most widely used stablecoins in the crypto space. Each one follows a different model and runs on multiple blockchains.
This is one of the most important things to understand — stablecoins exist on different networks, and the same token can behave differently depending on where it lives. For example, USDT exists on Ethereum (as an ERC-20 token) and Tron (as a TRC-20 token). This flexibility is great because it allows fast, cheap transfers when you pick the right network. But it can also be confusing. If you send USDT from Tron to an Ethereum-only wallet, you could lose access to your funds. Always check which version of the token you’re using.
USDT (Tether)
USDT is the world’s most used stablecoin. It launched in 2014 under the name “Realcoin,” then rebranded to Tether. You’ll find it on almost every exchange.
Most traders use USDT to move money quickly between platforms. It helps them take advantage of price gaps — this is called arbitrage. But it’s not just for traders.
In Argentina, where inflation passed 140% in 2023, people turned to USDT to protect their savings. It became a simple way to store value and send money abroad — no banks needed.
Tether has had its share of controversy. The company behind it, Tether Ltd., spent 22 months battling New York’s Attorney General. They were accused of covering an $850 million loss using Bitfinex funds. In 2021, they settled, paid $18.5 million, and agreed to publish regular reserve reports.
Still, USDT remains the top fiat-backed stablecoin by volume. It’s fast, liquid, and accepted everywhere — even if trust in its reserves still sparks debate.
USDC (USD Coin)
USDC is the cleaner, more transparent cousin of USDT. It launched in 2018, created by Circle in partnership with Coinbase. It’s pegged 1:1 to the U.S. dollar and backed by fully reserved cash and short-term treasuries.
You get more transparency with USDC. It’s regulated, audited, and supported by major players like Goldman Sachs and Baidu. Circle issues the coin and leads its development.
Circle also leads when it comes to regulation. In 2024, it became the first stablecoin issuer to comply with MiCA, the EU’s new crypto law. It secured a license in France, allowing it to issue both USDC and EURC legally across Europe.
This move gave USDC a leading edge. Major exchanges like Coinbase, Kraken, and Crypto.com started removing stablecoins that don’t meet MiCA’s standards, but USDC stayed — and strengthened its foothold in the region.
Read also: USDT vs. USDC.
BUSD (Binance USD)
BUSD is Binance’s dollar-pegged stablecoin. It launched in 2019 through a partnership with Paxos. It’s fully backed, regulated by the NYDFS, and audited monthly.
Traders loved BUSD because it worked perfectly within Binance’s ecosystem. It became the default trading pair for dozens of assets. You could use it on Ethereum or Binance’s BNB Chain, saving on fees.
But Binance stopped minting new BUSD in early 2024. You can still trade it, and it’s still accepted in most BNB-based apps — just know that it’s being slowly phased out.
DAI
DAI is different. It’s a decentralized stablecoin created by MakerDAO. It runs on Ethereum, with no central company controlling it. Instead of holding dollars in a bank, DAI uses smart contracts and crypto as collateral.
When you lock up ETH or other assets in a Maker Vault, you generate DAI. The system automatically manages supply. If the price drops, it burns tokens. If it rises, it mints more. That’s how it holds the peg.
DAI gives you stability without central control. It’s perfect if you want to avoid relying on traditional institutions. You’ll see DAI everywhere in DeFi — Aave, Compound, Curve, and more.
And yes, you can spend DAI in the real world. Monolith once offered a Visa card that let Europeans spend DAI like cash. It’s a strong alternative if you believe in decentralized money.
Stablecoin Regulation across the World
Stablecoins have become a global regulatory focus. Their rapid growth and use in payments, trading, and DeFi have pushed lawmakers to balance innovation with consumer protection, financial stability, and anti-money laundering rules.
The European Union (EU)
The EU introduced the Markets in Crypto-Assets (MiCA) regulation to set common rules for crypto assets, including stablecoins. MiCA’s stablecoin rules came into effect on June 30, 2024, with additional rules for service providers starting December 20, 2024.
MiCA defines two stablecoin types:
- E-money tokens (EMTs) – pegged to one fiat currency (e.g. USD, EUR), used as payment.
- Asset-referenced tokens (ARTs) – tied to baskets of currencies, crypto, or commodities, used more as a store of value or exchange.
Issuers of both must be licensed, publish whitepapers, manage reserves properly, and guarantee redemption rights. Larger, “significant” stablecoins face tougher oversight from the European Banking Authority (EBA).
Circle’s USDC is the first stablecoin approved under MiCA. Others like USDT risk being delisted from EU platforms if they don’t comply.
Singapore
The Monetary Authority of Singapore (MAS) finalized its stablecoin framework in 2023. It applies to single-currency stablecoins (SCS) pegged to either the Singapore Dollar or major G10 currencies. Issuers must meet strict rules on reserve backing, capital, redemptions, and disclosures. Compliant issuers can earn “MAS-regulated” status.
Hong Kong
Hong Kong is building its own framework for stablecoin issuers. While final legislation is still underway, the Hong Kong Monetary Authority (HKMA) has launched a regulatory sandbox. It lets selected projects test their models and shape the upcoming rules. Three pilot projects were accepted in July 2024.
Japan
Japan was early to regulate stablecoins, allowing banks and licensed companies to issue fiat-backed tokens. Issuers must meet strict reserve requirements. While firms like MUFG are exploring the space, local adoption is still small. Japan’s FSA is reviewing its framework to align with international standards.
United States
The U.S. is still debating how to regulate stablecoins. Despite the popularity of USDC and USDT, there’s no federal law covering their issuance. Lawmakers are pushing new bills to bring clarity, focusing on reserve transparency, consumer protection, and money laundering safeguards. A draft stablecoin bill passed committee review in 2023, but progress has stalled.
What Are Stablecoins Used For?
Stablecoins are more than just digital dollars. Their stability makes them incredibly useful in real-world scenarios — from trading and payments to supporting financial systems in unstable economies.
Cross-Border Payments
Stablecoins allow for fast and low-cost international transfers without relying on traditional banking systems. They’re accessible 24/7, settle quickly, and don’t require approval from central authorities. Migrant workers and businesses use them to send money across borders, especially where banking is slow or expensive.
Hedging Against Market Volatility
Crypto markets are known for their ups and downs. Stablecoins help users maintain a stable value during uncertain times. Traders, investors, and protocols often move into stablecoins when volatility spikes to protect capital and avoid sudden losses in portfolio value.
Preserving Value in Economically Unstable Regions
In countries hit by hyperinflation or currency collapse, people turn to stablecoins as a store of value. With limited access to the global financial system, stablecoins offer an alternative. In Argentina, for example, people use USDT to escape peso devaluation. Stablecoins also improve financial inclusion by giving unbanked individuals access to digital money.
Trading
Stablecoins play a core role in crypto trading. They allow users to quickly move in and out of positions without converting back to fiat. This helps avoid fees and delays, especially during price fluctuations. Most major exchanges use stablecoins as base pairs in spot and futures markets.
Payments
Stablecoins enable fast and cost-effective payments — no matter the location. Some businesses and financial institutions now accept stablecoins for payroll, remittances, and online purchases. Their stability makes them ideal for transactions where price consistency matters.
Decentralised Finance (DeFi) Applications
Stablecoins are the backbone of DeFi. You can lend, borrow, farm yield, or provide liquidity — all without touching volatile assets. Protocols like Aave, Compound, and Curve rely heavily on stablecoins for their core functions, making the ecosystem more predictable and efficient.
The Pros and Cons of Stablecoins
| Pros | Cons |
| Fast and low-cost transactions | Risk of de-pegging |
| Global access without banks | Dependence on issuer transparency |
| Works across platforms and apps | Centralization concerns |
| Stable value in volatile markets | Regulatory uncertainty |
| Useful for trading and DeFi | Reserve asset risks |
Advantages
Stablecoins have a number of key advantages, and keeping these in mind can help you make more informed decisions.
Super Quick Transfers
Stablecoin transactions happen in seconds, not days. Compared to traditional banking systems, this is a major advantage. Whether you’re sending money across the globe or swapping assets on an exchange, stablecoins offer lightning-fast transfers. Their speed makes them a reliable medium for everything from remittances to real-time trades. As a medium of exchange, stablecoins combine speed with global reach.
Global Accessibility
People in underserved regions use stablecoins to send and receive money without relying on local banks. With just a smartphone, users can access crypto wallets and stablecoin platforms. This makes stablecoins globally accessible and appealing across economic classes.
Easy to Use on Any App
Stablecoins are easy to use and work on many platforms — centralized exchanges, DeFi apps, and wallets. You can buy them via bank transfer or even a crypto credit card. They’re flexible, fast, and simple to move around. This makes them ideal for users who want a familiar, liquid, and widely accepted asset across multiple apps and services.
Safer Than Traditional Payments
Stablecoins use blockchain technology, which makes them secure and tamper-proof. Many stablecoins are backed by fiat currency, providing confidence in their value. They’re also more private than traditional banking options and harder to block or censor.
Cost-Efficient Transfers
Sending money abroad through banks often involves high fees. With stablecoins, those fees drop dramatically. The reason? There’s no middleman. Stablecoins use blockchain rails to process transactions directly, resulting in significantly lower transaction fees. This is especially important for users making frequent international transfers or micropayments.
Disadvantages
It’s also important to stay mindful of some potential drawbacks. Here’s what you need to know.
Reserve Risk and Transparency
Stablecoins are tied to reserve assets like fiat or crypto. If those reserves are mismanaged or not properly disclosed, the value of the stablecoin can break. This undermines trust and defeats the point of using a stablecoin to avoid risk. Always check how well the stablecoin is backed and whether it’s truly tied to a fiat currency.
Lack of Decentralization
Most stablecoin issuers are private companies. That gives them control over supply, reserves, and policy. While convenient, this goes against the core values of decentralized finance. If the issuer isn’t transparent or solvent, users are exposed to risks — including blacklisting or frozen funds.
Peg Instability
Stablecoins are supposed to keep a fixed price — but that’s not guaranteed. If there’s a shock to the market, problems with the underlying asset, or a loss of confidence, the stablecoin can drop below its target. This is called de-pegging. It challenges the coin’s ability to maintain price stability, especially in times of stress. TerraUSD’s collapse is the clearest example of what can go wrong.
Should You Use Stablecoins?
Stablecoins are useful if you want to avoid crypto volatility, send money fast, or access DeFi tools. They’re easy to use, often cheaper than banks, and available worldwide.
But like any asset, they carry risks. Do your research and choose well-regulated, transparent stablecoins to stay on the safe side.
How to Buy Stablecoins?
Buying stablecoins is simple — you don’t need a trading background or a crypto wallet full of coins to start. You can buy them with a credit card, bank transfer, or even Apple Pay.
One of the easiest ways to buy stablecoins is through Changelly. It’s a beginner-friendly platform that lets you purchase top stablecoins like USDT, USDC, or DAI in just a few steps. No complex trading interface, no hidden fees.
Need to sell stablecoins later? You can do that on Changelly too — instantly swap your stablecoins for crypto or fiat, all in one place.
Final Words
You now understand what stablecoins are and why they matter. They give you a way to use crypto without big price swings. You can store value, send money, or trade safely. They work fast, cost less, and don’t need a bank. You just need a wallet and internet. Some are backed by cash, others by crypto or code. Always check how stablecoins keep their value. Choose ones with clear rules and strong backing. That helps you avoid risk and stay protected.
FAQ
Are Stablecoins the Same as Regular Money?
Not exactly. Stablecoins are digital currencies designed to mimic fiat money like the U.S. dollar. While they aim for price stability, they’re not legal tender — meaning governments don’t officially recognize them as currency.
How Do I Know That A Stablecoin Is Safe?
Check if it’s backed by reserves, audited regularly, and issued by a licensed company. Look for transparency reports and real-time data. Trustworthy stablecoins publish details about their holdings and operations.
Can Stablecoins Lose Their Value?
Yes. Stablecoins can depeg if reserves are mismanaged, demand shifts, or confidence drops. Most stay close to their peg, but sharp market events — like with TerraUSD — show that risk exists.
Do I Need a Bank Account to Use Stablecoins?
No. You can use stablecoins with only a crypto wallet. That’s why they’re so useful for people without access to banks — all you need is a smartphone and internet.
What Happens If Regulations Change?
If rules shift, some stablecoins may be restricted or delisted from platforms. However, regulated issuers like Circle (USDC) are preparing for this by aligning with global frameworks like MiCA in the EU.
Is Bitcoin a Stablecoin?
No. Bitcoin is not a stablecoin. It’s a decentralized digital asset with high price volatility. Stablecoins are designed to stay at a fixed value — Bitcoin is not.
Disclaimer: Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.
