A stablecoin is a digital token designed to keep a fixed value, usually one US dollar, so that money can move on a blockchain without the price swings of bitcoin. Most stablecoins hold cash and short-term government debt behind every coin and promise to redeem each one at face value.

How a stablecoin holds its value

The largest stablecoins are backed by ordinary financial assets. The issuer takes in dollars, holds them as bank deposits, Treasury bills and similar instruments, and creates one token for each dollar it holds. Anyone who meets the issuer’s requirements can hand a token back and receive a dollar. Because holders are not paid interest, the issuer keeps the income those reserves earn, and that income is the business.

A second group is backed by other crypto assets. Sky’s USDS and its predecessor Dai are created when users lock up more crypto in a smart contract than the stablecoins they borrow against it. If the collateral falls in value, the position is sold before the stablecoins are left unbacked.

A third group aims for a stable value without holding a dollar for each coin. Synthetic dollars such as Ethena’s USDe hold crypto assets and offset their price moves with derivatives positions. Algorithmic designs go further and rely on rules that expand or shrink the supply to hold the price. The algorithmic approach collapsed in 2022, as described below. Neither design qualifies as a payment stablecoin under the new US law.

How big the market is

As of 5 October 2026, stablecoins in circulation were worth about $306.9 billion, according to DefiLlama, which tracks supply on public blockchains. Two coins make up most of it. Tether’s USDT accounted for $184.0 billion, roughly 60% of the total, and Circle’s USDC for $74.2 billion, about 24%. The next three, Sky Dollar, Ethena’s USDe and Dai, were each worth between $4.8 billion and $6.7 billion.

The two leaders are run differently. Circle is a US company and publishes the make-up of the reserves behind USDC. Tether is based outside the United States and has a history with regulators over its reserves: in 2021 the Commodity Futures Trading Commission fined it $41 million for misstatements about the backing of USDT. That difference matters more now, because both the US and the EU have written rules that decide which coins can be offered to their residents.

How stablecoins are regulated

United States: the GENIUS Act

The GENIUS Act became law on 18 July 2025 and creates a licence for “payment stablecoin” issuers. The FDIC’s proposed rule spells out what it requires. Every coin must be backed one for one by reserves held in cash, bank deposits, money at a Federal Reserve Bank, Treasury bills with 93 days or less to run, overnight repurchase agreements backed by Treasuries, or money market funds that hold only those assets. The issuer has to publish the make-up of its reserves every month, and its chief executive and chief financial officer have to certify the report, with criminal penalties if it is false. Issuers may not pay holders interest or yield. If an issuer fails, holders rank ahead of its other creditors.

Issuers with $10 billion or less in circulation can choose a state regulator instead of a federal one, according to Treasury’s first rule under the Act. Larger issuers move to federal supervision.

As of 5 October 2026 the rules that put the Act into practice were still proposals. The Office of the Comptroller of the Currency published its proposal in February and has said it wants a final rule by November, PYMNTS reported. The FDIC followed in April, Treasury in August and the Federal Reserve on 29 September, with comments open until 30 November. The Act takes effect on 18 January 2027, or 120 days after the regulators issue final rules if that comes sooner. From 18 July 2028, US platforms will no longer be able to offer stablecoins from issuers that lack a licence.

European Union: MiCA

The EU’s Markets in Crypto-Assets Regulation has covered stablecoins since 30 June 2024. A coin tied to one official currency is an e-money token and can only be issued by a bank or an authorised electronic money institution. In January 2025 the European Securities and Markets Authority told national regulators to make sure crypto platforms stopped offering non-compliant stablecoins by the end of March 2025.

Tether did not seek authorisation. Coinbase Europe, Crypto.com, Binance and Kraken restricted or removed USDT for EU users, and when MiCA’s transition period ended on 1 July 2026 the coin lost its remaining access to regulated EU platforms, The Paypers reported. Circle’s USDC and its euro coin EURC are now the main stablecoins on licensed European exchanges.

What stablecoins are used for

Stablecoins started as a tool for crypto traders, who park money in them between positions rather than wait for a bank transfer. The newer business is payments, and it is being built into systems that banks and card networks already run.

Cards came first. Visa says it supports more than 160 stablecoin-linked card programmes, and that business and commercial cards carried about 17% of that volume in its 2026 financial year to date, as Fintechbits reported. Bank networks have followed. Fiserv’s digital asset platform went live on 1 October with Bank of North Dakota’s Roughrider Coin, a dollar stablecoin for moving money between the state’s banks and credit unions, Fintechbits reported. Banks are also putting stablecoins inside their own payment systems: Volante’s deal with Circle brings USDC into the payment engines banks use, and Citi and Coinbase have paired a bank with stablecoin checkout. Then there are cross-border payouts, where companies such as Latitude convert stablecoins into local currency for the person being paid.

None of this needs the person paying or being paid to hold crypto. In most of these setups the stablecoin is used to settle in the background and the customer sees dollars.

When stablecoins have failed

Two episodes explain why the new rules focus on reserves. In May 2022 TerraUSD, an algorithmic stablecoin with no reserves of cash, lost its peg and fell to about 10 cents. Together with its sister token Luna it wiped out almost $45 billion of market value in a week.

In March 2023 a fully backed coin wobbled too. Circle disclosed that $3.3 billion of the roughly $40 billion behind USDC was held at Silicon Valley Bank when the bank failed, and USDC traded below 87 cents on 11 March, CNBC reported. It returned to a dollar once US authorities said all of the bank’s deposits would be protected. The GENIUS Act’s list of permitted reserve assets, and its rule that holders are paid first if an issuer fails, answer both problems.

Questions about stablecoins

Is a stablecoin the same as a central bank digital currency?

No. A stablecoin is issued by a private company and is a claim on that company’s reserves. A central bank digital currency would be issued by the central bank itself, like cash in digital form.

Do stablecoins pay interest?

The issuer cannot pay it. The GENIUS Act bars licensed issuers from paying holders any interest or yield for holding the coin, and MiCA bans interest on e-money tokens. The issuer keeps the income from the reserves instead.

How is a stablecoin different from a tokenised deposit?

A tokenised deposit is a bank deposit recorded on a blockchain. It stays a liability of the bank and keeps whatever deposit protection the account had. A stablecoin is a liability of its issuer, backed by a separate pool of reserves. The GENIUS Act’s definition of a payment stablecoin excludes deposits.

Can a stablecoin lose its peg?

Yes. TerraUSD collapsed in 2022 and USDC briefly fell below 87 cents in 2023. A coin backed by high-quality reserves that holders can redeem quickly is far less likely to break, which is what the new US and EU rules require.

Which stablecoins can be used in the EU?

Only those whose issuer is authorised under MiCA can be offered on regulated EU platforms. Circle’s USDC and EURC are the largest. USDT is no longer available on them.