A stablecoin is a crypto token built to trade at a fixed price, almost always one US dollar. It moves on public blockchains like any other token, yet its value is meant to stay put, which makes it the main way dollars travel inside crypto markets. This guide takes the machinery apart: who can create and destroy coins, the three ways coins are backed, how to read a reserve report, and what happened in the two best-known breaks, UST in May 2022 and USDC in March 2023. For the wider asset class, start at the crypto hub.
What is a stablecoin, and what does the peg mean?
A stablecoin is a token whose issuer or protocol aims to hold its market price at a fixed value, usually $1, and that target is called the peg.
The peg is a goal, not a price control. Coins trade on exchanges and in automated pools at whatever price buyers and sellers agree, and the issuer can steer that price only through what it promises holders: that a coin can be turned back into a dollar, and that assets worth at least a dollar sit behind every coin. A coin at $0.9990 is on its peg for everyday purposes; one at $0.95 has broken it.
Most stablecoins are tokens issued on general-purpose networks such as Ethereum, Tron and Solana, following the same token standards as other crypto assets, as what is Ethereum explains. Dollar coins dominate: DefiLlama tracked $298.49 billion of them on November 2, 2026, and Tether's USDT and Circle's USDC together made up about 84% of that. People use them to park cash between trades, to move dollars between platforms at any hour, and to send money abroad, which sending money with stablecoins covers.
How do minting and redemption keep a stablecoin at $1?
Approved traders can create coins for $1 and hand them back for $1, so whenever the market price drifts, a profitable trade pushes it back.
Minting is the primary market. A business with an account at the issuer wires dollars and receives new coins, and the issuer adds the money to its reserves. Redemption runs the other way: the business returns coins, the issuer burns them, meaning it removes them from circulation, and wires dollars out. Everyone else trades in the secondary market, swapping coins that already exist.
Arbitrage ties the two markets together. If a coin trades at 99.6 cents, an approved firm can buy it cheaply and redeem it for a dollar, and its buying lifts the price. If the coin trades at $1.003, the firm can mint at $1 and sell, and the extra supply pushes the price down. The width of the band around $1 depends on costs: redemption fees, trading fees, and the hours or days it takes dollars to clear through banks.
Access to that trade is narrow: Tether's minimum redemption is $100,000 and Circle redeems only for institutions, so ordinary holders rely on other firms' arbitrage to keep the selling price near $1. USDC vs USDT compares the two issuers' terms.
Worked example: Closing a discount with a 0.1% redemption fee
- A firm with an issuer account sees the coin trading at $0.9960 and buys 1,000,000 coins for $996,000.
- It redeems them at $1 each. A 0.1% fee costs $1,000, so it receives $999,000.
- Gross profit: $3,000, or about 0.30%, for a trade that can take a day or more to settle.
- Break-even: with a 0.1% fee, the trade pays only when the coin trades below $0.9990, before trading costs and the cost of tying up cash.
- The mirror image: at $1.003, minting 1,000,000 coins for $1,000,000 and selling them brings in $1,003,000, a $3,000 gain before fees, and the new supply pulls the price back down.
The trade needs an open redemption window. When Circle could not process redemptions over a weekend in March 2023, the discount on USDC widened instead of closing.
What are the three main stablecoin designs?
Stablecoins differ in what stands behind each coin: cash and short-term government debt, a surplus of other crypto, or nothing but a set of swap rules.
| Design | What backs each coin | How the peg is defended | Typical way it breaks | Examples |
|---|---|---|---|---|
| Fiat-backed | Cash, bank deposits, Treasury bills, repos and money market fund shares held by a company | The issuer mints and redeems at $1 for approved customers | Reserves frozen, lost or mismanaged; redemptions paused | USDT, USDC |
| Crypto-backed | More crypto locked in smart contracts than the coins issued against it | Borrowers repay to reclaim collateral, and vaults are liquidated automatically when collateral falls | Prices gap down faster than liquidations can run; reliance on other stablecoins as collateral | DAI, USDS |
| Algorithmic | A sister token from the same project, or no assets at all | A rule lets holders swap one coin for $1 worth of the sister token | A run inflates the sister token's supply until both collapse | UST, which failed in 2022 |
On DefiLlama's classification, fiat-backed coins made up 91.2% of dollar-stablecoin supply on November 2, 2026, crypto-backed coins 8.7% and algorithmic coins 0.1%. Within each design, the quality of the specific assets and the rules for getting money out matter more than the label.
What backs a fiat-backed stablecoin?
A pool of dollar assets held by the issuer, mostly Treasury bills, repurchase agreements and bank deposits, worth at least as much as the coins outstanding.
Paper money plays almost no part. The issuer invests what it receives in short-term assets that mature or can be sold quickly, keeps the interest as its main source of revenue, and holds a margin above the coins in circulation as a cushion. Circle's latest examined report showed $73.96 billion of reserves against 73.88 billion USDC in circulation on September 30, 2026, with about 85% in a government money market fund that holds Treasury bills and overnight repos, and most of the rest as cash at banks. Tether's latest quarterly report showed $191.45 billion of assets against $183.50 billion of liabilities on September 30, 2026, an excess of $7.95 billion. Most of its assets were Treasury bills and repos, alongside gold, bitcoin and secured loans.
Three features decide whether a reserve can meet a run:
- Liquidity. A Treasury bill maturing in weeks can be sold within hours. A loan or a gold bar takes longer and may fetch less in a hurry.
- Concentration. Cash at a single bank carries that bank's risk, which is exactly what went wrong for USDC in 2023.
- The cushion. Assets above the coins outstanding absorb losses before holders take any.
Federal law tightens the rules from January 18, 2027, when a permitted issuer must hold at least 1:1 reserves in cash or Federal Reserve balances, deposits at insured banks and credit unions, Treasuries with 93 days or less to maturity, overnight repos and reverse repos backed by Treasuries, government money market funds that hold only those assets, other liquid federal government assets a regulator approves, and tokenized versions of the non-repo assets. The GENIUS Act guide covers the rest of that rulebook. Because the reserve income belongs to the issuer, holding the coin itself pays nothing; stablecoin yield vs bank interest explains where advertised rewards come from instead.
How do crypto-backed stablecoins like DAI stay at $1?
Borrowers lock up crypto worth more than the coins they mint, and the system sells that collateral automatically if its value falls too close to the loan.
DAI, issued through the MakerDAO protocol, is the best-known example, and its newer version, USDS, which Fed researchers describe as a rebranding of Dai, now has the larger supply of the two. A user deposits ether or another approved token into a smart-contract vault, borrows newly minted DAI against it, and gets the collateral back by repaying the DAI plus a fee; the repaid DAI is burned. Loans are typically overcollateralized at around 150%, according to the Fed note on the 2023 turmoil.
The peg rests on those loans. When DAI trades below $1, borrowers can buy it cheaply to repay their debts, which burns coins and lifts the price. When it trades above $1, opening new loans and selling the DAI becomes attractive, which adds supply.
Worked example: An illustrative vault that gets liquidated
- Deposit 10 ETH at an assumed price of $2,000, so the collateral is worth $20,000.
- Borrow 10,000 DAI, a collateral ratio of 200%.
- Suppose the vault must stay above 150%. Liquidation starts once the collateral is worth less than $15,000, which means ether at $1,500, a 25% fall.
- If ether drops to $1,400, the protocol sells collateral to cover the 10,000 DAI debt plus a penalty, and the borrower keeps whatever is left.
The 10,000 DAI stay backed, but the borrower loses part of the deposit. The danger to the coin itself comes when prices gap down faster than the auctions can sell collateral.
Leaning on other stablecoins creates a different weakness. To tighten its peg, MakerDAO ran modules that swapped USDC for DAI one for one. When USDC slid in March 2023, traders pushed around 1 billion USDC a day into that module on March 10 and 11, dragging DAI down with it. Governance voted on Saturday, March 11 to cut the daily cap to 250 million and raise the fee to 1%, but a built-in 48-hour delay meant the change took effect only on Monday, after the panic had passed.
Why did algorithmic stablecoins like UST fail?
Nothing outside the system backed them: UST promised that one coin could always be swapped for $1 of LUNA, a token from the same project.
Terraform Labs launched UST around September 2020. The swap ran in both directions, so when UST traded below $1 a trader could buy it, exchange it for $1 of newly minted LUNA and sell the LUNA, while the UST handed in was burned. That held only while LUNA kept its value. Demand came largely from the Anchor protocol, which paid deposit rates of up to 19.5% a year by the Hong Kong Monetary Authority's account, or as much as 20% by the SEC's.
The design failed in a run. In May 2022, as holders questioned those rates and global interest rates climbed, redemptions surged. The protocol minted LUNA to absorb them, LUNA's supply grew exponentially and its price sank toward zero, leaving UST with nothing behind it. At their spring 2022 peak, UST and LUNA had a combined market value above $50 billion.
It had cracked before. UST fell below 92 cents in May 2021, and prosecutors later said the recovery came from a trading firm secretly buying UST, not from the algorithm. Terraform co-founder Do Kwon pleaded guilty to fraud charges and was sentenced on December 11, 2025 to 15 years in prison.
Worked example: Why a swap-for-$1 rule spirals
- With LUNA at $80, redeeming 1,000 UST mints 12.5 new LUNA.
- With LUNA at $1, the same 1,000 UST mints 1,000 LUNA.
- With LUNA at $0.01, it mints 100,000 LUNA.
- Each wave of new LUNA hits the market, so the next redemption creates even more of it, and the selling drives the price lower still.
A backing asset issued by the same project tends to lose value at exactly the moment it is needed.
Coins of this kind sit outside the GENIUS Act's definition of a payment stablecoin, which requires an issuer bound to pay out a fixed amount per coin, and the law asked the Treasury to study them instead.
What happened to USDC in March 2023?
USDC fell to 86 cents after Circle said $3.3 billion of its reserves, roughly 8%, was trapped at the collapsed Silicon Valley Bank; it regained $1 within days.
| When (Eastern time) | What happened |
|---|---|
| Friday, March 10, 11:37 a.m. | Silicon Valley Bank was placed into receivership after more than $40 billion of withdrawals in a day; USDC redemptions jumped even before Circle said anything |
| Friday, March 10, about 10 p.m. | Circle disclosed that $3.3 billion of reserves was stuck at the bank |
| Weekend of March 11 and 12 | With redemptions tied to US banking hours, USDC traded as low as 86 cents; on Saturday Circle pledged to cover any shortfall, with outside capital if needed |
| Sunday, March 12, 6:15 p.m. | The Treasury, the Fed and the FDIC said all of the bank's depositors would be protected, and USDC rebounded |
| Monday, March 13 | Circle resumed redemptions and the coin returned to $1 |
| By Wednesday, March 15 | Circle had redeemed $3.8 billion of USDC and minted $0.8 billion since Monday morning |
The episode separates solvency from liquidity. Reserves totaled more than $40 billion, so even losing the $3.3 billion outright would have left roughly 92 cents behind each coin, yet the price fell lower because holders could not redeem until Monday and were selling to each other. The stress also spread: DAI slid with USDC through its swap module, and two smaller coins with no exposure to the bank, USDP and GUSD, dropped to about 91 and 96 cents as traders swapped discounted DAI for them. Money flowed to USDT, which traded slightly above $1. Our stablecoin depeg history study tracks other breaks.
How big is the stablecoin market today?
The table below lists the eight largest dollar stablecoins by circulating supply, with each coin's 30-day change, latest price and type of backing.
| Stablecoin | Circulating supply | 30-day change | Price | Backing |
|---|---|---|---|---|
| Tether (USDT) | $179.28B | -2.5% | $0.9990 | fiat backed |
| USD Coin (USDC) | $71.44B | -3.7% | $0.9995 | fiat backed |
| Sky Dollar (USDS) | $6.39B | -4.8% | $1.0000 | crypto backed |
| Dai (DAI) | $4.72B | -1.5% | $1.0001 | crypto backed |
| Ethena USDe (USDe) | $4.54B | -7.1% | $0.9985 | crypto backed |
| World Liberty Financial USD (USD1) | $3.89B | -12.4% | $0.9981 | fiat backed |
| Global Dollar (USDG) | $2.86B | -7.7% | $1.0000 | fiat backed |
| PayPal USD (PYUSD) | $2.76B | -3.2% | $0.9998 | fiat backed |
Circulating supply is the dollar value of coins in public hands. For a fiat-backed coin it rises when businesses mint and falls when they redeem, so the 30-day change works as a flow signal, and a sharp drop can mean holders are cashing out: after USDT slid to 94 cents on May 11, 2022, its market value fell from about $83 billion to $74 billion within a week, according to the Financial Stability Oversight Council. The price column shows the latest trade to four decimal places, and the backing column uses the design labels described above. Our stablecoin rankings cover more coins and longer history.
How can you check what backs a stablecoin?
Read the issuer's latest reserve report, note who checked it and to what standard, and compare the reported assets with the coins in circulation.
Before holding a stablecoin
- Report date. Monthly or quarterly, and how old the latest one is.
- Who checked it. An examination or reasonable-assurance report tests the figures at a point in time, not every day in between, and it is not a full audit of the company.
- Asset mix. The share in Treasury bills, repos and government money funds versus gold, bitcoin, loans or other investments.
- Cushion. How far assets exceed the coins outstanding.
- Redemption terms. Who may redeem, the minimum amount, the fees and how long payment takes.
- Freeze powers. Both major issuers can block addresses and freeze coins under their terms.
- Where it trades. The networks and platforms that list the coin, since a coin is only as easy to sell as the market you hold it in.
Which agencies oversee issuers and platforms today is covered in crypto regulation in the US.
What are the risks of holding stablecoins?
The main risks are a broken peg, frozen or lost reserves, paused redemptions, issuer or platform failure, and rules that change which coins US platforms may offer.
- Depegs. Even well-backed coins can trade below $1 for days, and algorithmic designs can fall to nearly zero. Crypto as a whole is volatile and can lose most or all of its value.
- No insurance. A stablecoin is not a bank deposit. Neither the FDIC nor SIPC covers the coin, whatever a platform's marketing suggests.
- Redemption gates. Issuers can pause or limit redemptions, as banking hours did in March 2023, and most individuals cannot redeem directly at all.
- Freezes. Issuers block addresses linked to crime or legal orders; Circle's September 2026 report counted 131,245,845 USDC as access-denied.
- Platform failure. Coins left on an exchange are a claim on that exchange, and the issuer's reserves do not help if it collapses; see how safe crypto is on an exchange.
- Mistakes and fraud. Transfers are irreversible, so a wrong address, a wrong network or a scammer's request usually means the money is gone; crypto scams shows the common patterns.
- Rule changes. From July 18, 2028, platforms serving US customers may offer only coins from permitted issuers or approved foreign issuers, which could make other coins harder to sell here at $1.
Before holding a stablecoin, check its latest reserve report and who can actually redeem it, and remember that a token built to stay at $1 can still fall below it.