A stablecoin is a cryptocurrency built to not be volatile. Where Bitcoin or Ether can move 10% in a day, a stablecoin is engineered to stay pinned to a reference price — almost always one US dollar. That single property is what turns a blockchain from a trading venue into a payments network: if a token is reliably worth a dollar, you can use it to pay a salary, settle an invoice, or send money home, without either side gambling on the exchange rate.
The mechanism is simple in the most common case. A regulated company takes in one dollar, holds it (and short-term US Treasuries) in reserve, and issues one token in return. To redeem, you hand back the token and get your dollar. The reserves are what make the peg credible; the blockchain is what makes the token move in seconds, globally, around the clock.
Why stablecoins exist
Three problems pushed dollars onto blockchains.
- Volatility made crypto unusable as money. Traders needed a way to sit in "dollars" without leaving the exchange. Stablecoins gave them a dollar that lived on-chain.
- The dollar is in demand everywhere, but hard to get. In economies with weak local currencies or limited banking, a dollar-pegged token reachable from a phone is a genuine store of value and a way to transact.
- Moving money internationally is slow and expensive. A blockchain settles a transfer in seconds for cents; correspondent banking takes days and layers on fees. Stablecoins inherit that speed.
By 2025 those forces had pushed stablecoin supply into the hundreds of billions of dollars, and annual on-chain stablecoin transfer volume into the tens of trillions — numbers that put the asset class in the same conversation as the card networks.
The three designs
Not all stablecoins hold their value the same way. The design determines the risk.
| Design | How the peg holds | Examples | Main risk |
|---|---|---|---|
| Fiat-backed | One token per dollar of cash + Treasuries in reserve | USDC, USDT, PYUSD | Reserve quality, redemption access, issuer solvency |
| Crypto-backed | Over-collateralised with on-chain assets (e.g. $1.50 of ETH per $1) | DAI | Collateral crashes faster than it can be liquidated |
| Algorithmic | Code and incentives, little or no reserve | (failed) TerraUSD | Reflexive collapse — the peg breaks and can't recover |
Fiat-backed stablecoins are the overwhelming majority of supply and the only design most businesses should consider. Crypto-backed designs are resilient but capital-inefficient. Algorithmic stablecoins are the cautionary tale: TerraUSD (UST) held its $1 peg with an arbitrage loop against a sister token until confidence cracked in May 2022, wiping out roughly $40 billion in days. The lesson the market drew — and that regulators later codified — is that a dollar stablecoin should be backed by dollars.
Who issues them
The supply is concentrated. Tether (USDT) is the largest, dominating trading pairs and everyday payments in emerging markets. Circle (USDC) is the second pillar, US-based and built around compliance and transparency. Newer entrants — PayPal's PYUSD, bank consortium coins, and issuer-specific dollars — are expanding the field as regulation makes issuance safer to build on.
What every credible issuer now shares is disclosure: regular attestations of what backs the coins. After 2022, "trust us" stopped being an acceptable answer, and the 2025 wave of legislation made reserves and reporting a legal requirement rather than a marketing choice.
Where stablecoins live: the rails matter
Here is the part most explainers skip. A stablecoin is only as good as the chain it runs on. The same USDC behaves very differently depending on the rail underneath it:
- On a congested general-purpose chain, a $5 transfer can cost more than $5 in fees at peak, and you need to hold a separate volatile token just to pay for gas.
- On a chain tuned for payments, the same transfer settles in under a second for a fraction of a cent.
That gap is why a new category of payments-first chains has appeared. Tempo, incubated by Stripe and Paradigm, is the clearest example: it has no native token at all — gas is paid directly in USD-denominated stablecoins — targets fees under $0.001, and reaches deterministic sub-second finality. The asset (the stablecoin) and the rail (the chain) were designed for each other rather than bolted together.
For a first-time reader, the takeaway is two-layered: a stablecoin is a dollar you can program and send anywhere; which network you send it over decides whether that feels like a wire transfer or like sending a text.
What to read next
If you now understand what a stablecoin is, the useful next questions are how it holds its peg, which type to trust, and which rail to send it over. The links below go there — and the Tempo field guide picks up where the asset ends and the network begins.