What is a stablecoin?
Stablecoins are digital assets designed to mirror the value of a fiat currency, such as the US dollar.
Although prices can fluctuate based on how each stablecoin is structured, and some have failed entirely, stablecoins generally maintain the value of the fiat currency they represent.
Stablecoins live on existing blockchains, and can live on several blockchains simultaneously. For example, USDT on Ethereum and USDT on Solana are separate smart-contract tokens, yet both draw on the same reserves at Tether. To learn more about tokens, please read our article called Coins vs tokens.
A short history of stablecoins
Stablecoins started to emerge around 2014 and the first major stablecoin was USDT by Tether, a custodial token backed one-for-one by cash and cash-equivalent reserves.
USDT quickly became the largest stablecoin, existing on Ethereum, Solana, and many other blockchains. It is still the most widely used stablecoin.
In 2017 MakerDAO launched DAI, the first major stablecoin collateralized with crypto assets and governed by a decentralized autonomous organization. Regulated, fully reserved alternatives followed, led by USD Coin from Circle and Coinbase in 2018 and Binance USD in 2019.
The 2022 collapse of the algorithmic TerraUSD stablecoin erased tens of billions of dollars and accelerated regulation, including the European MiCA framework and several United States bills.
By mid 2025 stablecoins had surpassed a combined 200 billion dollars in market value and are now viewed as a foundational component of emerging digital payment rails.
Why stablecoins exist
Stablecoins bring fiat currencies onto the blockchain so anyone can use them like digital cash.
People and companies use them to:
- Send money across borders quickly and with low fees
- Hold value pegged to dollars when local currency is losing value
- Send pay or family support home without with expensive bank wires
- Park funds between trades to avoid big price swings
- Move large sums between exchanges any time, even when banks are closed
How do stablecoins maintain their value?
There are many types of stablecoins, each using a different method to keep their value steady.
The most common and widely used stablecoins, like USDT and USDC, are backed by collateral. This means each stablecoin is supported by real-world assets, such as dollars or short-term bonds, held in reserve. This 1 backing is generally considered the most reliable approach.
Because anyone can deploy a token and name it USDT, USDC, or anything else, it’s essential to double-check that a payment is in an official token, not an imitation with zero value.
Some stablecoins, like DAI, are backed by other crypto assets instead. While still collateralized, this setup carries more risk because crypto prices can be volatile.
Other stablecoins rely on algorithms to manage their value without using any collateral. These are much riskier. If the system can’t handle large market swings, the stablecoin’s value can collapse, as happened with TerraUSD.