This is general information, not investment, financial, tax or legal advice, and not a recommendation about any token.
Most cryptocurrencies swing in price, which makes them awkward for everyday payments or as a place to park money between trades. Stablecoins try to solve that by aiming for a steady value, most commonly one U.S. dollar per token. They have become a large part of the digital-asset market and a growing subject of regulation, and the details of what stands behind each one matter a great deal.
What a stablecoin is
A stablecoin is a digital token on a blockchain whose issuer or design aims to keep its price pegged to another asset, usually a national currency. People use dollar-pegged coins to move value quickly across borders, to trade between other crypto assets without cashing out to a bank, and in some cases to make payments.
The peg is a promise, not a law of nature. It holds only if people believe the token can be exchanged for a dollar, and if the issuer or the system can actually deliver.
Three ways to hold the peg
There are three broad designs:
- Fiat-backed. The issuer holds reserves, such as cash, bank deposits and short-term U.S. Treasury bills, and says each token can be redeemed for one dollar. This is the largest category, and Tether’s USDT and Circle’s USDC are among the best known.
- Crypto-collateralized. The token is backed by other crypto assets locked in smart contracts, usually in greater amounts than the tokens issued to absorb price swings.
- Algorithmic. The token relies on code and market incentives, and sometimes a companion token, to expand or shrink supply to hold the peg, with little or no collateral.
The differences are significant. A fiat-backed coin depends on the quality of the reserves and the integrity of the issuer. A crypto-collateralized coin depends on the code and the value of the collateral. An algorithmic coin depends on market confidence.
When the peg breaks
History offers examples. In May 2022, TerraUSD, an algorithmic stablecoin, collapsed along with its companion token, wiping out tens of billions of dollars in value within days and contributing to wider market turmoil. In March 2023, USDC briefly dropped well below a dollar after its issuer disclosed that part of its cash reserves was held at Silicon Valley Bank, which had just failed. The peg recovered after authorities moved to protect the bank’s depositors.
The lesson most analysts draw is that stablecoins can experience a “run,” similar to a bank run. If many holders try to redeem at once, an issuer with illiquid reserves can fall short, and confidence can vanish quickly.
Are stablecoins the same as bank deposits?
No. A bank deposit at an insured institution is protected by Federal Deposit Insurance Corporation coverage up to the legal limit if the bank fails. A stablecoin is generally not a deposit and is not covered by FDIC insurance, and the Securities Investor Protection Corporation does not protect against crypto losses either. Platforms that suggest otherwise have drawn regulatory warnings. If a firm holds your dollars at a partner bank, some pass-through coverage may apply to that cash, but that is different from protection for the token. Protection depends on the specific arrangement, so read the terms.
What did the GENIUS Act change?
In July 2025, the President signed the GENIUS Act, the first major federal law specifically for payment stablecoins. According to summaries from law firms and agencies, its main features include:
- A requirement that issuers back each token on at least a one-to-one basis with high-quality liquid assets, such as U.S. dollars, bank deposits and short-term Treasury securities.
- Segregation of reserves from the issuer’s operating funds, held with qualified custodians.
- Monthly public disclosure of the reserve composition, reviewed by an independent accounting firm.
- Rules for who may issue stablecoins, with federal and state pathways, and the application of anti-money-laundering and sanctions requirements.
Agencies, including the Office of the Comptroller of the Currency, have been developing rules to implement the law, and some provisions take effect on a delayed schedule, so details and deadlines may change. Anyone relying on the specifics should read the statute and the current agency rules.
Why reserves matter to Treasury markets
Large issuers hold substantial amounts of short-term Treasury bills as reserves, which has linked the stablecoin market to government debt markets and to interest rates. Reserve income depends on those rates, a dynamic explained in how the Federal Reserve sets interest rates. Policymakers and economists debate how large the effect might become, and whether stablecoins could become systemically important.
What to look for
If you are evaluating any specific stablecoin, these questions give a starting point:
- What backs it? Cash and Treasuries are different from commercial paper, loans or other crypto.
- Who audits or attests? Look for independent reports and how recent they are.
- Can you redeem directly, and at what minimum size and fees, or only by selling on an exchange?
- Where is it regulated, and what rights do holders have if the issuer fails?
- What are the risks of the platform where you hold it? Custody choices affect your exposure to exchange failures and hacks.
Stablecoins also show up in tax rules, since the IRS treats them as digital assets, and transactions can carry reporting duties explained in how the IRS taxes crypto. Stability is a goal, not a guarantee, and the details are in the reserves.
Sources: U.S. Congress; Office of the Comptroller of the Currency; Federal Deposit Insurance Corporation; Securities and Exchange Commission; Internal Revenue Service
