A stablecoin is a cryptocurrency that tracks the value of ordinary money, usually the dollar. How it works, and why it matters.
A stablecoin is a token on a blockchain designed to have a fixed value, usually one US dollar or one euro. Unlike bitcoin and other cryptocurrencies, its price is not supposed to fluctuate.
Stablecoins combine the properties of ordinary money with the advantages of a blockchain. They can be sent around the clock, across borders and in seconds.
The largest stablecoins are backed by reserves in ordinary money and short-term government securities. For every token issued, the issuer must hold matching value in reserve.
Anyone who owns a stablecoin should be able to exchange it back for ordinary money with the issuer. It is this right of redemption that keeps the price stable.
The two largest stablecoins are USDT from Tether and USDC from Circle, both pegged to the US dollar. There are also stablecoins in euros, but they are still much smaller.
Stablecoins exist on many blockchains, including Ethereum, Solana and Tron.
Stablecoins have become the most used money in the crypto market, both for trading and as a safe haven when prices fall. They are also increasingly used for payments and money transfers.
For banks and authorities, stablecoins are a sign that money is starting to move onto blockchains. That is why they are now being regulated more strictly in both Europe and the US.