What is a stablecoin?
In one line: A stablecoin is a crypto token designed to keep a steady price, usually $1, often by holding cash and short-term government bonds to back it.
A simple example
You sell some bitcoin and want to stay on the crypto exchange without riding price swings. You move into 1,000 USDC. Each one aims to be worth $1, so you hold about $1,000.
The two largest stablecoins are USDT (Tether) and USDC (Circle). Many crypto pairs are priced in them, like BTC/USDT.
How they hold $1
- Backed by reserves: the issuer holds cash and short-term US government debt worth at least as much as the coins out there. You can, in principle, swap 1 coin back for $1 with the issuer.
- Backed by crypto: some lock up more crypto than the coins they issue, as a cushion.
- Algorithmic: some tried to hold $1 with code and trading incentives alone. The best-known, TerraUSD, collapsed in May 2022.
In July 2025 the US passed the GENIUS Act, the first federal law setting rules for payment stablecoins, including reserve requirements.
When the peg slips
A stablecoin can trade below $1 if people doubt its backing. That's called a de-peg.
In March 2023, Silicon Valley Bank failed while holding part of USDC's cash reserves. USDC briefly dropped to about $0.88. Your 1,000 USDC would have been worth about $880 for a short time. It returned to $1 within days, once the deposits were secured.
Why it matters
- Parking spot: traders use stablecoins to step out of a trade without leaving crypto.
- Pricing: many charts and Perpetual futures contracts are priced in USDT or USDC.
- Risk: "stable" depends on the issuer and its reserves.
Our crypto trading guide for beginners covers the basics of exchanges and pairs.
A common mistake
Treating a stablecoin like a bank deposit. In the US, it isn't covered by FDIC insurance. Read who issues it, what backs it and how you'd turn it back into dollars.
Questions
Do stablecoins pay interest?
The coin itself usually doesn't. Some platforms offer rewards for holding them, which come with their own risks.
What is the biggest stablecoin?
USDT (Tether) has been the largest by total value for years, with USDC second.
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