---
title: "What Is a Stablecoin? How Dollar Tokens Hold Their Peg"
term: "Stablecoin"
type: glossary_term
canonical: https://www.moonwire.org/insights/glossary/stablecoin.html
---

# What Is a Stablecoin? How Dollar Tokens Hold Their Peg

> A crypto token designed to keep a steady price against a reference asset, usually one US dollar. The largest are issued against reserves, mostly cash and short-dated government debt, held for the tokens in circulation.

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

1. **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.
2. **Crypto-backed.** Tokens are issued against other crypto-assets locked as collateral, usually worth more than the tokens issued.
3. **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](https://www.moonwire.org/insights/glossary/genius-act.md), in the EU under [MiCA](https://www.moonwire.org/insights/glossary/mica.md), and in the UK under a Bank of England regime whose draft was [revised in June 2026](/insights/breaking-brief-boe-stablecoin-holding-caps.html).

## 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](/insights/m2-record-usdc-float-shrinks-1-4-billion.html) 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.

## Further reading

- [Wikipedia: Stablecoin](https://en.wikipedia.org/wiki/Stablecoin)
- [Wikipedia: USD Coin](https://en.wikipedia.org/wiki/USD_Coin)

## Where this appears in MoonWire analysis

- [Two hits, one miss - and an XRP read that turns over](https://www.moonwire.org/insights/prognosis-daily-2026-07-21.md) — Jul 21, 2026
- [Rotation Read: Bitcoin Softens as Solana Leads the Alt Bid](https://www.moonwire.org/insights/prognosis-daily-2026-07-03.md) — Jul 3, 2026

---

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