Stablecoin
A stablecoin is a type of cryptocurrency that aims to maintain a stable value relative to a specified asset, a pool or basket of assets. The specified asset might refer to fiat currency, commodity, or other cryptocurrencies. Despite the name, stablecoins are not necessarily stable. Stablecoins rely on stabilization tools such as reserve assets or algorithms that match supply and demand
Overview
A stablecoin is a type of cryptocurrency that aims to maintain a stable value relative to a specified asset, a pool or basket of assets. The specified asset might refer to fiat currency, commodity, or other cryptocurrencies. Despite the name, stablecoins are not necessarily stable. Stablecoins rely on stabilization tools such as reserve assets or algorithms that match supply and demand to try to maintain a stable value. Historically, multiple stablecoins have failed to maintain their value relative to the underlying assets. With a growing number of market transactions involving stablecoins, their issuance and usage are increasingly regulated by governments around the world.
Background
Stablecoins emerged in 2014 as a method for investors in cryptocurrencies to park their money when they invest in other highly volatile cryptocurrencies. Stablecoins are now mainly used for buying or selling cryptoassets, and for making cross-border payments. According to the Bank for International Settlements in July 2025, 90% of the market capitalization of stablecoins was either in Tether or USDC. According to the Financial Action Task Force, the market capitalization of stablecoins reached $316 billion in October 2025, while daily trading volume reached $156 billion. Within the stablecoin market, 95% of them are backed by fiat currency, while 97% among those fiat currency-backed stablecoins are denominated in US dollar.
Fiat-backed stablecoins
Fiat-backed stablecoins are stablecoins that are backed by assets denominated in a fiat currency. The value of a fiat-backed stablecoin is based on the value of the backing currency, which is supposedly held by a third party custodian. The issuer defends the peg of the stablecoin by holding mostly fiat-denominated short-term assets, such as treasury bonds, high-quality commercial paper, repurchase agreements and bank deposits. Therefore, the structure of fiat-backed stablecoins closely resembles that of money market funds (MMFs), and they are exposed to similar risk of large-scale redemption requests causing negative contagion effects on the financial system. As of October 2025, nearly 97% of fiat-backed stablecoins are pegged to the US dollar. Major examples of US-dollar-pegged stablecoins are Tether's USDT and Circle's USDC. For Euro-pegged stablecoins, examples include Circle's EURC, EUR Tether, and Stasis EUR.
Cryptocurrency-backed stablecoins
Cryptocurrency-backed stablecoins are stablecoins using other cryptocurrencies as collateral. The reason such stablecoins are created is that by utilizing smart contracts, they allow a decentralized network to track the price of the US dollar as closely as possible. Another use case of cryptocurrency-backed stablecoins is to convert a cryptocurrency into ERC20 compatible standard to enable trading on another blockchain.
Commodity-backed stablecoins
Commodity-backed stablecoins are stablecoins that are backed by commodities. Examples are PAX Gold and Tether Gold.
Algorithmic stablecoins
Algorithmic stablecoins, sometimes called seigniorage-style stablecoin, are stablecoins with no reserve assets or only partial reserve assets. They utilize algorithms that match supply and demand of the stablecoins to maintain a stable value. The European Central Bank suggests that algorithmic stablecoins should be treated as unbacked crypto-assets. Some major examples of algorithmic stablecoins are Celo Dollar, Tron's USDD and Kava's USDX.
Trading other cryptocurrencies
Stablecoins provide convenience for investors in cryptocurrencies, as a simpler way to buy and sell other more volatile cryptocurrencies. Planet Money has described this use of stablecoins as similar to casino chips, as they simplify buying and selling other cryptocurrencies before eventually being traded for money.
Cross-border payments
According to a 2025 report from the International Monetary Fund (IMF), cross-border flows of stablecoin surpassed those of unbacked crypto assets in early 2022. According to the IMF, Asia and the Pacific region have the most stablecoin activity, while after adjusting for GDP, the majority of stablecoins flow from North America to other locations. The report estimated that stablecoin cross-border flow was $1.4 trillion in 2024, compared to the global cross-border payment market of approximately one quadrillion dollars. In advanced economies, cross-border flows is dominated by traditional payment systems. The largest share of stablecoins being used for cross-border transactions was among emerging markets and developing economies. According to a study by the University of Cambridge, the most cited reason for using stablecoins in cross-border settlement is the 24/7 settlement capability, allowing transactions to take place outside banking hours. A 2025 study in the journal Telematics and Informatics, of 866 U.S.-based adults who had sent remittances within the previous year, 26% reported using stablecoins for cross-border transfers, with 34% also using other methods.
Currency substitution
According to Chainalysis, due to the volatility of the Venezuelan bolivar, some Venezuelans use US dollar-denominated stablecoins to preserve value and transact in a more stable currency. In January 2026, it was reported that US dollar-denominated stablecoins are increasingly being used in domestic transactions in Venezuela due to prolonged period of hyperinflation, sanctions, and capital controls. A report by Standard Chartered warned that the prevalence of US dollar-denominated stablecoins could potentially cause $1 trillion from developing countries to flow to stablecoins, causing loss of bank deposits. The capital outflow would be caused by risk aversion of individuals within the developing countries against sudden sharp currency depreciation.
Aid distribution
Since 2019, Oxfam began distributing humanitarian aid to residents of Vanuatu using US dollar stablecoins. By 2022, the project registered 35,000 people in the Pacific region and has distributed aid of around $2 million to participants. According to a report published by the United Nations Development Programme (UNDP) in January 2026, the UNDP is running pilot programmes involving stablecoins in Columbia, Syria, Gambia, Papua New Guinea, Kazakhstan, and Morocco. For example, in Syria, the UNDP Cash-for-Work programmes experienced difficulty delivering stipends to Syrians due to lack of financial infrastructure, and so the UNDP is experimenting with sending stablecoins to the beneficiaries instead. According to media report in 2021, Portuguese nonprofit ImpactMarket reported distributing over $1 million in Celo Dollar stablecoins to more than 18,000 beneficiaries in 102 locations in Africa, and said some local merchants had begun accepting the tokens for payments.
Money laundering and terrorism financing
In January 2024, the United Nations Office on Drugs and Crime (UNODC) reported that stablecoins, particularly USDT, had become the cryptocurrency of choice for organized crime groups engaged in cyberfraud and money laundering in East and Southeast Asia. Reuters reported in 2023 that groups designated as terrorist organizations by Israel, the United States and other countries were using stablecoins on the Tron blockchain instead of more volatile bitcoin tokens to preserve the value of transferred funds. The intergovernmental Financial Action Task Force (FATF) has reported that stablecoins are increasingly used for illicit financial activity, including money laundering, terrorism financing, sanctions evasion, and proliferation financing. The report states that stablecoins such as USDT (Tether) and USDC (Circle) provide a relatively stable medium for moving proceeds compared with more volatile cryptocurrencies, and that their liquidity, interoperability, and ease of cross-border transfer make them attractive for illicit use.
Erosion of monetary sovereignty
After the passing of the GENIUS Act by the Trump administration in the United States, Jürgen Schaaf, adviser to the European Central Bank (ECB) wrote that widespread adoption of US dollar stablecoins could erode European monetary sovereignty and financial stability. Scholars in China and Singapore have both described the GENIUS Act as a strategic move to increase demand for US Treasuries and therefore an attempt to consolidate the hegemony of the US dollar. Lesetja Kganyago, Governor of South African Reserve Bank, expressed that US dollar stablecoins are being used to undermine African currencies, and is concerned that some African countries might lose their monetary sovereignty. Agnès Bénassy-Quéré, Deputy Governor of the Banque de France, and François Villeroy de Galhau, Governor of the Banque de France, warned that Europe's monetary sovereignty is threatened by US dollar-denominated stablecoins. In March 2026, a research published by the ECB examined the effect of foreign-currency-denominated stablecoins on the monetary sovereignty of Europe. The adoption of US dollar-denominated stablecoins would import foreign monetary policies into Europe, weakening the ability of central banks to affect short-term interest rates, complicate liquidity management within the banking system, and increase exchange-rate-related volatility in funding flows. In extreme cases, it could make Europe's own monetary policy tools ineffective.
Wikipedia contributors · Stablecoin · revision 1381240620 · CC BY-SA 4.0 · Plain text extracted and formatting adapted; tags derived from linked topics.