What are stablecoins?
A stablecoin is a crypto token designed to hold a steady value, almost always one US dollar. It lets you keep dollars on a blockchain and move them instantly without a bank. The largest are fiat-backed: USDT (Tether) at around $190 billion and USDC (Circle) at around $77 billion, each backed by reserves of cash and short-term Treasuries. Others use crypto collateral or, riskily, algorithms. In 2026 the US GENIUS Act set federal rules for them. They are central plumbing for crypto but not risk-free. This guide explains them, and is educational, not investment advice.
Most crypto assets are volatile by nature, which makes them poor at one basic job: simply holding a steady value. Stablecoins exist to fill that gap. A stablecoin is a token engineered to stay worth a fixed amount, nearly always one US dollar, so it behaves like digital cash that lives on a blockchain. By 2026 stablecoins had grown into a market of more than $320 billion and become some of the most-used tokens in all of crypto, the rails that much of the on-chain economy runs on. This guide explains how they work and where the risks hide.
What a stablecoin is
A stablecoin combines two things that used to be separate: the stability of a dollar and the speed of a blockchain. Hold one and you hold something meant to always be worth a dollar, but you can send it anywhere in the world in seconds, any time, without a bank. That combination is why stablecoins became the default way to move value between exchanges, to settle trades, to send money across borders, and to hold dollars on-chain without converting back to a bank account.
The key question for any stablecoin is what keeps it worth a dollar. A token is only as stable as the mechanism behind its peg, and there are three main approaches, with very different risk profiles. Understanding which kind you are holding matters more than the logo on it, because the mechanism is what gets tested when markets get stressed.
The three types
The largest and simplest type is fiat-backed. For every token in circulation, the issuer holds a dollar, or a dollar's worth of safe assets like cash and short-term US Treasury bills, in reserve. You trust that the reserves are real and accessible, which is why attestations and audits matter so much for this type. USDT and USDC, the two giants, are both fiat-backed, and together they make up the large majority of the market.
The second type is crypto-collateralized. Instead of dollars in a bank, these are backed by other crypto assets locked in smart contracts, and because crypto is volatile, they require more than a dollar of collateral for each dollar of stablecoin, an overcollateralized buffer. DAI and similar tokens work this way, staying on-chain and transparent at the cost of capital efficiency. The third type, algorithmic, tried to hold a peg through code and supply adjustments rather than real backing, and it is the cautionary tale of the category: the collapse of TerraUSD in May 2022 erased tens of billions of dollars in days and largely discredited the pure algorithmic model.
USDT versus USDC
The two dominant stablecoins took different paths to the top. USDT, issued by Tether, is the larger by far at around $190 billion and the global default, especially in trading and in emerging markets, prized for being available almost everywhere across many blockchains with few barriers. USDC, issued by Circle, is smaller at around $77 billion but positioned as the compliance-first, institution-friendly option, with monthly attestations from a major auditor and deep ties to regulated finance, favored by businesses and companies like major payment networks.
The distinction is less about which is technically better and more about posture. USDT optimized for global reach and accessibility, while USDC optimized for regulatory alignment and transparency. Both are fiat-backed and both publish reserve attestations, but they appeal to different users, and in 2026 their competition is increasingly shaped by how each fits the new rules. Our USDT and USDC price pages cover each one specifically.
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Download for MacThe GENIUS Act and regulation
2026 was the year stablecoins got serious regulation. In the United States, the GENIUS Act, signed into law in July 2025, created the first federal framework for payment stablecoins, requiring full one-to-one backing with high-quality liquid assets, regular public disclosure of reserves, and protections that prioritize token holders if an issuer fails. Implementation rules were being finalized through 2026 ahead of full enforcement. In the European Union, the MiCA framework set its own rules, including a requirement that significant issuers hold much of their reserves as bank deposits.
These regimes do not perfectly agree, which has real consequences. The US rules favor Treasury-heavy reserves while the EU rules favor bank deposits, so a large issuer serving both must run separate reserve pools, fragmenting how a single token is backed by region. This is why regulation has become a defining force in the stablecoin market: compliance posture now shapes which tokens can operate where, and the competition between issuers increasingly turns on who fits the rules in which jurisdiction. This is context on how the market works, not advice.
The risks, including depegs
Stablecoins are designed to be boring, but they are not risk-free, and the central risk is a depeg, when a stablecoin slips from its dollar value. The most important lesson of recent years is that full reserves are necessary but not always sufficient. Even a well-backed stablecoin can wobble if the market panics or if the reserves are temporarily hard to access. The clearest example was in March 2023, when USDC briefly lost its peg after some of its reserves were caught in a failing bank, even though those reserves were ultimately recovered. The token recovered too, but it showed that a depeg can hit even a transparent, reputable issuer.
Beyond depegs sit reserve risk, the chance that backing is insufficient or illiquid, counterparty and issuer risk, smart-contract risk for the crypto-backed kind, and regulatory risk as the rules tighten. Algorithmic stablecoins carry the most acute risk of all, as Terra proved. None of this means stablecoins are bad, they are useful infrastructure, but the honest summary is that a stablecoin is a promise backed by a mechanism, and the quality of that mechanism is everything. Treat the peg as very likely to hold but not guaranteed.
Watching a stablecoin's price
Watching a stablecoin price is different from watching a volatile coin. The interesting number is not whether it rises, it should not, but whether it holds its dollar peg. A stablecoin trading at exactly a dollar is doing its job. One drifting to ninety-nine or ninety-eight cents is signaling stress worth noticing. For anyone holding stablecoins, a glance that confirms the peg is intact is useful information.
CoinNotch shows live stablecoin prices in your Mac menu bar, so you can keep an eye on whether the peg is holding at a glance. See the USDT and USDC price pages for each, and to understand the assets stablecoins are often paired against, read what is Ethereum.