What is Stablecoin?
Last reviewed 2026-05-03
Used by: Fireblocks Network for Payments, River Stablecoin, MAS Stablecoin Regulatory Framework, GHO Stablecoin
Entity coverage: 1 protocol, 9 tokens, 0 chains reference this concept.
Cite / Read deeper: DeFi Intel stablecoins deep-dive
A stablecoin is a crypto asset pegged to a stable reference, usually the US dollar. Categories: fiat-backed (USDC, USDT, PYUSD), crypto-backed (DAI/USDS, crvUSD), algorithmic (UST — failed; FRAX — partial), and synthetic (USDe). ~$200B aggregate supply by 2026.
How it works
Every design holds its peg through a mint-and-redeem loop that makes arbitrage profitable whenever the price drifts. Fiat-backed issuers take in dollars, hold reserves in cash and short-term instruments, and mint one token per dollar; redemption burns tokens and returns dollars. If the token trades below $1, arbitrageurs buy it cheap and redeem at par; above $1, they mint at par and sell. Supply expands or contracts until the price snaps back.
Crypto-backed stablecoins are minted from vaults: a user locks volatile collateral worth more than the debt, draws stablecoins against it, and repays the debt to reclaim the collateral. If the collateral's value falls below the required ratio, the position is liquidated — collateral is sold off to cover the debt — keeping the system solvent without trusting any issuer.
Synthetic designs instead hold a hedged position, such as spot collateral offset by a short perpetual, so portfolio value stays flat. Purely algorithmic pegs backed only by a seigniorage token have historically collapsed under redemption pressure.
Why it matters
Stablecoins are the largest crypto product by transaction volume — settled $10T+ in 2024-2025. They underpin DeFi liquidity, CEX quote books, and payments to emerging markets.
Real-world examples
USDC ($30B+, Circle), USDT ($140B+, Tether), DAI/USDS ($5B+, Sky), PYUSD ($1B+, PayPal), USDe ($5B+, Ethena).
Related terms
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Stablecoins deep-dive Browse GlossaryFrequently asked questions
What is a stablecoin?
A stablecoin is a crypto asset pegged to a stable reference, usually the US dollar.
What are the categories of stablecoins?
Categories include fiat-backed (USDC, USDT, PYUSD), crypto-backed (DAI/USDS, crvUSD), algorithmic (UST — failed; FRAX — partial), and synthetic (USDe).
How do fiat-backed stablecoins maintain their peg?
Fiat-backed issuers take in dollars, hold reserves in cash and short-term instruments, and mint one token per dollar; redemption burns tokens and returns dollars, and arbitrageurs buy or sell to snap the price back to $1.