Stablecoins explained: how they hold their value
How dollar stablecoins such as USDT and USDC keep their price, the backing models, what can make one lose its peg, and how to hold and send them safely.
Updated 14 Sept 2026 · Beginner · 4 min read
In short
- A stablecoin is a token designed to be worth a fixed amount, almost always one US dollar. What keeps it there is its backing and the ability to redeem it.
- The largest are backed by cash and short-term government debt held by a company. Others rely on crypto collateral or trading strategies, and some designs have failed outright.
- Issuers can usually freeze tokens at any address, and the same coin exists on many networks. Check the network and the contract address before you send or accept one.
What a stablecoin is for
Bitcoin and ether change price every second. A stablecoin is a token built to stay at a fixed value, usually $1, so that people can hold and send dollars on a blockchain. Traders use them to park money between trades, businesses use them for payments that settle in minutes, and people in countries with unstable currencies use them to save in dollars.
A stablecoin is only as good as whatever lets you swap it for a real dollar. There are several designs, and each fails in its own way.
How they are backed
- Reserve-backed. A company issues a token for each dollar it receives and holds reserves, mostly cash and short-term US Treasury bills, to redeem them. USDT (Tether) and USDC (Circle) are the largest. You are trusting the issuer’s reserves, its banks and its reporting.
- Crypto-collateralised. Users lock more crypto in smart contracts than the stablecoins they mint, and positions that fall below the required ratio are sold automatically. DAI, from the protocol now called Sky, is the best-known example. You are trusting the code, its price feeds and the collateral, part of which is itself reserve-backed stablecoins.
- Synthetic. Some newer designs hold crypto and cancel out its price moves with derivatives positions, paying holders from the funding those positions earn. They depend on derivatives markets working under stress.
- Algorithmic. Designs held at $1 only by incentives to mint and burn a second token. TerraUSD, then one of the largest stablecoins, collapsed in May 2022 and took its sister token LUNA down with it.
What losing the peg looks like
Stablecoins trade on open markets, so the price can drift from $1. Deviations of a fraction of a cent are normal and close quickly, because anyone who can redeem with the issuer profits from buying below $1. Large breaks happen when holders doubt they will get a full dollar back.
In March 2023 USDC fell well below $1 over a weekend after Circle disclosed that part of its reserves sat at Silicon Valley Bank, which had just failed. It recovered once US authorities guaranteed the bank’s deposits. TerraUSD never recovered, because nothing of equal value stood behind it.
The markets page and crypto categories list stablecoins with their current prices and market caps, so you can see at a glance whether one is trading away from its peg.
The rules now
The EU’s MiCA regulation has covered stablecoins since June 2024, requiring issuers to be authorised and to hold reserves, and some exchanges have limited non-compliant stablecoins for EU customers as a result. In the US, the GENIUS Act of July 2025 created a federal regime for payment stablecoins that requires full reserves in cash and short-term Treasuries, with regular public reports; its rules are still being phased in.
Freezes, networks and fake tokens
- Issuers can freeze. The USDT and USDC contracts let their issuers block an address, and both do, often at the request of law enforcement. Tokens at a frozen address cannot be moved, even by the key holder. The contract admin inspector shows who owns a token contract and whether it is paused.
- One name, many networks. USDT and USDC exist on Ethereum, Tron, Solana, several layer 2s and more, each as a separate token contract. Sending USDT on Tron to an exchange that expects it on Ethereum is a common and sometimes unrecoverable mistake, so always use the network the recipient asked for.
- Fake copies. Anyone can deploy a token called USDC. Check the contract address against the issuer’s own website. Our transaction lookup marks tokens from a curated list as verified and labels the rest as unverified.
- Look-alike addresses. Stablecoin transfers are a favourite target for address poisoning, because they are frequent and large.
Using stablecoins well
- Hold them in a wallet you control, or with an exchange you trust, as you would any other crypto.
- Treat a high advertised yield on a stablecoin as a sign of risk. Someone is paying it, and it is worth knowing who and how.
- To be paid in a stablecoin, a payment request quotes the price in your own currency and names the token and network. Its QR code carries the token contract and chain ID, so the payer’s wallet fills both in.
- Keep records. In many countries spending or swapping a stablecoin can still count as a disposal for tax, even when its value has barely moved. See what records to keep.