What Is a Stablecoin? Definition, Types, How It Works, and Key Risks (2026)

A stablecoin is a cryptocurrency designed to hold a steady value—often pegged to the US dollar and supported by reserves or on-chain collateral—used for payments, transfers, and trading to avoid the large price swings common in other cryptocurrencies.

For many people, that steadiness is the whole appeal. In practice, stablecoins provide a simple and predictable way to use, store, and send money online. If you’re sending money to family in another country, holding savings between currencies, or just want a predictable way to move dollars, a stablecoin can behave less like a volatile crypto asset and more like digital cash. At Remitly, we help people move money across borders every day, so we look at stablecoins through that lens: what they’re good for, and where the fine print matters.

Quick Answers:

• A stablecoin is designed to hold a steady value, usually pegged to $1 USD.
• There are four types of stablecoins (fiat-backed, crypto-collateralized, commodity-backed, and algorithmic), each back by different assets and with its own strengths and risks.
• Algorithmic stablecoins typically carry higher risk than those backed by physical assets.
• Always double check your issuer, wallet address, and other security details before completing large transfers.

How do stablecoins keep a stable value? (Peg, reserves, and redemption)

A stablecoin’s price is meant to track a reference asset — almost always $1 USD — regardless of what’s happening elsewhere in the crypto markets. Issuers maintain that peg mainly through minting and redemption: authorized participants can create new coins by depositing the reserve asset they want to tie their coin to, or they can redeem coins for the underlying dollars, which keeps supply in line with demand. If you’re new to digital assets generally, our guide to how cryptocurrency works more broadly is a useful place to start before comparing specific coins. It’s also important to keep in mind that a stablecoin’s peg is different from its market price — the peg is the target value ($1 USD), while the market price is the real-time value, or the price people are actually paying for it.

There are a few peg mechanisms used to keep stablecoins from experiencing wild price swings, which are common in other types of cryptocurrencies:

1. Fiat-backed reserves: Cash and short-term Treasury bills held roughly 1:1 against coins in circulation.
2. Crypto-collateralized vaults: Users lock up more crypto value than the stablecoin they mint.
3. Commodity-backed reserves: A physical asset, like gold, held in a vault backs each token.
4. Algorithmic supply adjustments: Smart contracts expand or contract supply without holding a reserve asset.

An attestation confirms that reported reserves matched an issuer’s records on one specific day; it isn’t the same as a continuous, independently audited review. Most stablecoin issuers publish attestations rather than full audits, so it’s worth checking recent reports and which firm performed it.

Key terms

Types of stablecoins

Stablecoins fall into four broad categories, grouped by what actually stands behind their value. Knowing which category of coin you’re holding is the single most useful check before using one as real money.

Before we dive in, though, it’s important to note that it’s easy to conflate stablecoins with other crypto terms. They’re not the same as a central bank digital currency—see how a CBDC differs from a stablecoin for that distinction. A coin’s price stability, not its blockchain, is what makes it a stablecoin. And a stablecoin’s stability is also what sets it apart from an asset like Bitcoin, whose price moves with market supply and demand.

TerraUSD’s collapse in 2022 was a historic algorithmic failure. Over the span of just a week, UST and its sister coin, LUNA, crashed and wiped out billions of dollars from the crypto market. This is because UST was actually pegged to LUNA via a software code mechanism, which was then pegged to the typical $1 USD value. The issue was that there was a large 20% return given on UST deposits, which caused large amounts of UST to be sold in 2022. This eventually broke its peg with the US dollar and triggered a downward spiral.

What do people use stablecoins for? (Payments, transfers, DeFi, and trading)

People turn to stablecoins for a few practical reasons. Sending money across borders is the most direct one: a transfer that might otherwise take days can settle in just minutes, avoiding bank fees and long transfer times. Where a local currency is under pressure, some people convert savings into a US dollar-pegged stablecoin to protect their value — sending stablecoins to Argentina is one occasion where this pattern shows up often. Traders and DeFi users park funds in stablecoins between trades or as collateral, since a coin that isn’t swinging as much in price is easier to plan around. Businesses also use them for invoicing and escrow, where holding value during a pending deal matters more than growth. Remitly customers can also receive a transfer as a stablecoin payout in markets where that option is available.

What can go wrong in real usage

For all their strengths, there are also a few risks associated with these coins. For example, stablecoins move on public blockchains, and most transfers can’t be reversed once they’re sent. Common pitfalls include the following:

• Sending them to the wrong wallet address
• Using the wrong network for the coin you’re using — a token on one blockchain isn’t automatically compatible with another
• Lost wallet access
• Look-alike scam tokens

None of this is unique to stablecoins, but because these transfers are final, always double-check the address, network, and token contract before you send anything of value.

Stablecoin risks and protections (what US users should check)

Stablecoins’ biggest risks rarely show up in everyday use — instead, they show up under stress. Stablecoins may temporarily lose their value if they’re depegged, especially during market turbulence, usually triggered by a run on redemptions, doubts about reserve quality, or, for algorithmic coins, a loss of confidence in the mechanism meant to hold the price steady.

Counterparty risk is the flip side: with a fiat-backed coin, you’re trusting an issuer, and with a crypto-collateralized coin you’re trusting a smart contract’s code. Transparency varies by issuer, so always check how recent an attestation is and which firm signed off on it.

Scams are a separate, more common problem. Fake tokens and phishing links exist that borrow a legitimate coin’s name.

In the US, oversight is split across several bodies. The GENIUS Act, a federal law enacted in 2025, set the first comprehensive framework for payment stablecoins (one-to-one reserves in cash or short-term Treasuries, monthly public reserve reports, and redemption at face value). According to the Act, the Office of the Comptroller of the Currency (OCC) is a primary federal supervisor of stablecoins alongside the Federal Reserve and FDIC, depending on the issuer’s structure.

FinCEN, on the other hand, enforces anti-money-laundering rules, and the New York State Department of Financial Services (NYDFS) supervises New York-chartered issuers such as Paxos. The SEC and CFTC both weigh in on how specific tokens meet securities and commodities law. Full implementation of these rules will continue through 2026 and 2027, so policies may still be shifting.

Keep in mind that this information is educational and is not intended as financial or legal advice. Confirm current requirements and policies with a qualified professional.

For your own safety in handling stablecoins, adhere to the following safety checklist:

US safety checklist

• Confirm that the issuer of the coin has published a recent attestation or audit, and note which firm performed it.
• Check the reserve composition—cash and short-term Treasuries carry less risk than commercial paper.
• Look up whether the issuer is chartered or licensed, for example by the OCC or NYDFS.
• Double-check the wallet address and blockchain network before every transfer you make.
• Keep your own records of purchases, conversions, and sales for tax purposes.
• Treat any offer of guaranteed yield on stablecoin holdings with caution.

FAQ: stablecoins (US, 2026)

Are stablecoins actually safe?

The safety of stablecoins depends on what backs the coin and how transparent the issuer is. Fiat- and commodity-backed coins from regulated issuers with regular, independently reviewed reserve reports are generally considered lower risk than algorithmic coins, which have no reserve asset to fall back on.

What’s the difference between USDC and USDT?

Both coins are fiat-backed and pegged to the US dollar. USDC, issued by Circle, publishes monthly attestations from Grant Thornton covering cash and short-term Treasuries. USDT, issued by Tether, publishes quarterly attestations from BDO Italia and has held a larger share of Treasury bills alongside other assets.

How is the $1 peg maintained?

Issuers let authorized participants mint new coins by depositing the reserve asset, or redeem coins for that asset, at a fixed $1 rate. That ongoing ability to create or remove supply gives traders an incentive to buy below $1 and sell above it, keeping the market price close to the peg.

What causes a stablecoin to lose its peg?

A depeg usually follows a shock to confidence: reserves turn out to be lower quality than assumed, a bank holding reserves runs into trouble, or, for algorithmic coins, the stabilizing mechanism fails faster than it can be corrected. TerraUSD’s 2022 collapse remains the clearest example of an algorithmic coin failure.

Can I send stablecoins internationally?

Stablecoins can be sent across borders almost instantly and often with much lower fees than traditional banks. You’ll still need a compatible wallet on the receiving end, and network fees vary by blockchain and time of day.

Do stablecoins earn interest?

Some stablecoins generate interest through lending platforms or certain DeFi apps, though US rules now bar issuers themselves from paying interest just for holding their coin, and platform yield isn’t guaranteed.

Are stablecoins taxable in the US?

The IRS treats stablecoins as digital assets, similar to other cryptocurrency. Using, trading, or selling one can be a taxable event even though its value is designed to stay flat, while simply holding it generally isn’t. Keep your own records and check current IRS guidance or consult a tax professional for specifics.

Key takeaways

• Stablecoins are built to hold a steady value, not to grow like a typical investment or experience price swings like other forms of cryptocurrency.
• Check what backs a coin, how often the reserves are verified, and by whom before you rely on it.
• Transfers are usually fast and hard to reverse, so double-check the address and network every time you transfer.
• Algorithmic stablecoins generally carry higher risk than fiat- or asset-backed coins, as TerraUSD’s 2022 collapse showed.
• US reserve, disclosure, and tax rules are still evolving under the GENIUS Act, so it’s worth checking for updates.

Stablecoins are useful tools—if you understand the tradeoffs

Stablecoins solve a real problem: they’re basically crypto that doesn’t behave like crypto — at least, not on a good day. They can be genuinely useful for sending money, holding value, and building financial tools that need a stable unit of account. This general stability isn’t a reason to skip the basics, though. Before you move real money through any stablecoin, check who’s behind it, how its reserves are verified, and what happens if you send it to the wrong address. A small test transfer and a habit of keeping your own transaction records go a long way. If you’re weighing which coin to use for an international transfer, our guide to the most reliable stablecoins for sending money overseas can help you compare options.