A stablecoin is a crypto token built to hold a steady value against a reference asset — almost always one US dollar — while moving on a blockchain like any other token. Traders use stablecoins as the cash leg between trades; businesses increasingly use them for payments.
How the peg is held
- Fiat-backed. An issuer holds reserves — cash, bank deposits, short-dated government debt — against the tokens in circulation. USDT (Tether) and USDC (Circle) are the largest; the Bank for International Settlements put the two at 90% of stablecoin market capitalisation in July 2025.
- Crypto-backed. Tokens are issued against other crypto-assets locked as collateral, usually worth more than the tokens issued.
- Algorithmic. Little or no reserve; supply is steered by code and incentives. TerraUSD, the most prominent example, broke its peg in May 2022 and fell to about 10 cents.
Minting, redemption and the float
For a fiat-backed coin the arithmetic is one-for-one. A customer sends the issuer $1 million and receives 1 million new tokens; redeeming 1 million tokens returns $1 million and destroys them. The float — tokens in circulation — shrinks whenever redemptions exceed issuance.
The same mechanism defends the peg. If the token trades at $0.99 on an exchange, anyone able to redeem can acquire it there and hand it back for $1.00, and that demand pulls the price toward $1. It works only while the reserves are reachable: in March 2023 Circle disclosed that $3.3 billion, about 8% of USDC's reserves, sat at the failed Silicon Valley Bank. USDC slipped below its peg and regained it four days later.
Regulation
Stablecoins are now regulated as their own category — in the US under the GENIUS Act, in the EU under MiCA, and in the UK under a Bank of England regime whose draft was revised in June 2026.
In MoonWire analysis
Stablecoin supply is read as a gauge of the dollars on crypto's own rails. In August 2026 we covered USDC's float shrinking by $1.4 billion in 30 days while US M2 money supply set a record. Our daily prognosis never makes an up-or-down call on a stablecoin: a directional lean on a pegged asset carries no information.
What it is not
"Stable" is the design goal, not a guarantee. A stablecoin is only as sound as the reserves or collateral behind it.