Definition: stablecoin

A cryptocurrency whereby each coin is backed by something else. For example, one token of an asset-backed stablecoin such as Digix (DGX) or OneGram (OGC) equals one gram of gold. Fiat-backed stablecoins such as Tether (USDT) and Binance USD (BUSD) are pegged to one U.S. dollar. As of March 2023, the three top stablecoins by market cap are approximately USDT ($70B), USDC ($41B) and BUSD ($15B). See Tether, USDC and Binance.

Theoretically Stable
Stablecoins are a digital currency that have the attributes of Bitcoin without the price fluctuation.

Stablecoins Are Having Their Heyday
Because of the Trump administration's pro-crypto stance, as of 2025, banks are figuring out how to issue stablecoins and collect fees. Stablecoins provide a global money exchange with lower fees than typical bank transfers, so there is a lot of incentive worldwide. They also provide faster execution.

Stablecoins also offer a new product for banks. For example, not only collecting fees, but investing the cash they receive from issuing stablecoins provides a new profit vehicle. However, it is a complicated and costly process to set up and market stablecoins.

Tied to the Dollar

While crypto fluctuates wildly, dollar-pegged stablecoins such as USD Coin remain steady (see crypto stats). Because stablecoins are crypto, they can be transferred to any crypto wallet or exchange, and popular stablecoins are widely supported. Investors, traders and arbitrageurs use them for temporary cash (see crypto trading pair).

The Privacy Advantage
Keeping financial transactions private is another advantage. Stablecoins offer a private banking alternative, and naturally, crooks welcome this option.

Two Ways to Maintain Stability
The first is a "reserved" or "regular" stablecoin, which is backed by dollars, Euros or precious metals. For example, one dollar in collateral is maintained for each stablecoin.

The second is an "algorithmic" stablecoin, which is paired with some crypto token in a predefined ratio. If the stablecoin/token ratio goes out of balance, either stablecoins or tokens are created or destroyed ("burned") to maintain equilibrium. However, if the algorithm is not well designed, things can fall apart. For example, a lot of buzz surrounded the algorithmic TerraUSD stablecoin, which was paired with the LUNA token, when LUNA dropped from $1 to near zero (see TerraUSD). See DAI, Tether, Gemini Trust, USDC, Diem and crypto burning.