What is a stablecoin?

Cryptocurrencies are notoriously volatile and can experience huge price swings in less than 24 hours. While this is an attractive feature for speculators looking to profit from price movements, it’s also a major barrier to the widespread adoption and legitimacy of cryptocurrency.

Enter stablecoins. These cryptos provide stability and a much wider range of everyday use cases than cryptocurrencies currently enjoy. Keep reading to find out how stablecoins work, the benefits they offer and why they’re important.

What is a stablecoin?

A stablecoin is a cryptocurrency with a stable price. While the price of most cryptocurrencies is determined by supply and demand, stablecoins are designed to achieve a constant, steady price. This provides protection against the volatility for which Bitcoin and other cryptos are well known.

How do stablecoins maintain a steady value?

The most common method stablecoins use to achieve price stability is to peg the value of their coin to a real-world asset, for example gold or the US dollar. So if a stablecoin is linked to the US dollar, the coin issuer will hold USD$1 in reserve for every issued coin. The idea is that if you want to cash in your crypto stablecoin, you can exchange 1 coin for 1 US dollar.

But other stablecoins use different methods to maintain their value. Some are backed by cryptocurrencies, while others use complicated algorithms to achieve price stability by matching supply with demand.
Popular stablecoins list

Compare stablecoins side-by-side

Types of stablecoins

How do stablecoin creators achieve the price stability they desire? There are four different types of stablecoins, each with its own approach for ensuring minimal price fluctuations.

• Fiat-backed stablecoins

  This is the simplest method of creating a stablecoin and is used by Tether (USDT), one of the best-known stablecoins in existence and the largest in terms of market capitalization.

  Fiat-collateralized stablecoins are backed by a fiat currency, most commonly the US dollar. That asset is owned and held by a central entity, with each unit of the stablecoin backed by a corresponding unit of the fiat currency.

  For example, a stablecoin issuer accepts deposits in USD and issues one unit of stablecoin for every dollar it receives—the digital currency is effectively an IOU issued on that asset. If you decide you want to cash out 1,000 units of stablecoin, the coin issuer transfers you US$1,000 and “burns” 1,000 stablecoins.

  As an example of how a fiat-backed stablecoin works, check out the Tether price graph relative to the value of the USD below.

  

  Pros and cons of fiat-collateralized stablecoins

  Pros

  • Easy to understand. This method of price stability is reasonably easy to understand and implement.
  • Constant value. The use of fiat currencies to back these coins allows them to provide price stability in the volatile world of crypto.
  • Cross-border payments. These stablecoins combine the security and stability of real-world currencies with faster and cheaper international payments than traditional international money transfers.

  Cons

  • Trust required. This method requires a high level of trust in the central entity that controls fiat deposits and issues the stablecoin.
  • Audit requirements. Auditing is required to make sure an appropriate amount of collateral is being held—this can be slow and expensive.
  • Centralized. Fiat-backed stablecoins use a centralized structure that goes against one of the key principles of cryptocurrency—decentralization.

• Commodity-backed stablecoins

  The value of commodity-backed stablecoins is pegged to physical commodities like gold, silver and oil. Gold in particular has a well-earned reputation as a store of value and a reliable safe haven during times of market volatility, so it’s a logical asset to use to back a stablecoin.

  One example of a commodity-backed stablecoin is Tether Gold. Its XAUt tokens are backed by physical gold, and you can redeem your tokens for gold bars if you wish.

  Pros and cons of commodity-backed stablecoins

  Pros

  • Hedge against volatility. These stablecoins provide an easy way to gain exposure to precious metals such as gold, providing protection against inflation and stock market downturns.
  • Convenient. You don’t have to deal with the hassle and expense of transporting and storing physical commodities.
  • Divisibility. It’s easy to divide commodity-backed stablecoins into smaller units, which typically isn’t the case with the commodities themselves.

  Cons

  • Fluctuations. Commodity prices fluctuate, so the value of your stablecoin investment could change.
  • Storage fees. You may need to pay storage fees for the physical commodity that backs your coin.
  • Centralized. These stablecoins use a centralized model, which may not match the ethos of some crypto enthusiasts.

• Crypto-backed stablecoins

  The concept of crypto-backed stablecoins is fairly similar to that of fiat-collateralized stablecoins, but with the obvious difference that they’re backed by cryptocurrency (or a basket of digital currencies).

  They also need to account for the volatility of the cryptocurrency being offered as collateral. So while fiat-collateralized coins are backed on a 1:1 ratio by fiat deposits, crypto-backed stablecoin issuers hold crypto deposits of a ratio higher than 1:1. For example, you may need to deposit $500 worth of Ether (ETH) to access $250 worth of a stablecoin. So even if the price of ETH falls, the stablecoin can still maintain its stable value.

  Because crypto-backed coins can be managed on-chain, there’s no need to worry about entrusting your deposit to a third party. However, the biggest concern is the volatility of the underlying collateral, so the coin issuer must hold a substantial amount of collateral to protect against significant price drops.

  Pros and cons of crypto-backed stablecoins

  Pros

  • Decentralized. You don’t have to entrust custody of your collateral to a third party—instead, collateral is locked up in a smart contract on the blockchain.
  • Transparent. These stablecoins are conducted on-chain, which ensures transparency and removes the need for third-party auditing that fiat-backed coins have.
  • Easy to understand. Like fiat-backed stablecoins, crypto-backed stablecoins are easy to understand.

  Cons

  • Extra collateral required. Crypto-backed stablecoins require extra collateral to be secure against cryptocurrency volatility.
  • Volatility risk. There is a risk of the asset collateralizing the stablecoin experiencing a significant decline in value.
  • Difficult to select cryptos. If a coin is backed by a basket of cryptocurrencies, selecting the right currencies to ensure price stability can be difficult.

• Algorithmic stablecoins

  These stablecoins are controlled by an algorithm designed to match supply with demand in order to achieve price stability. Using smart contracts, supply is increased when the coin’s price goes up and decreased when it goes down, maintaining the price at a steady level.

  For example, if the price of the stablecoin is trading at above $1 per unit, the algorithm issues additional units to increase overall supply until the price returns to $1.

  Examples of algorithmic stablecoins include DAI and USDD.

  Pros and cons of algorithmic stablecoins

  Pros

  • Decentralized. Algorithmic stablecoins are completely decentralized, removing the need to trust a central third party.
  • No collateral required. These stablecoins don’t need to be backed by any collateral (though they are in some cases).

  Cons

  • Complicated. Algorithmic stablecoins are more complicated than other types and difficult for the average investor to understand.
  • Risk of collapse. The risk of panic selling during times of market volatility could potentially lead to the collapse of the coin, as famously happened with TerraUSD in 2022.
  • Demand required. These stablecoins rely on a certain level of demand—if there is no seigniorage left and seigniorage shares can’t be sold to raise funds, the price of the stablecoin could plummet.

Why do we need stablecoins?

While Satoshi Nakamoto’s vision for Bitcoin was as a form of electronic cash, the world’s biggest cryptocurrency is rarely used as a medium of exchange on a day-to-day basis. While the volatility of digital currencies offers plenty of profit opportunities for crypto day traders, it’s impractical for everyday transactions.

The same can be said for many other cryptocurrencies. Because prices fluctuate significantly from one day to the next, holding and using crypto in the same way you do Canadian dollars (getting paid a salary, paying for groceries, buying a coffee, etc.) simply isn’t viable. Think about it—why would a business accept Bitcoin as payment when 1 BTC might be worth CAD$165,000 today, but tomorrow its value could have dropped to CAD$159,000?

And this is where stablecoins offer a key advantage. Not only do they offer all the benefits of cryptocurrency, including cryptographic security and the ability to transfer value digitally, but they’re designed to have the low volatility for which fiat currency is famous. The end result is a digital currency that can theoretically be used as a daily medium of exchange in the real world.

Stablecoin uses and benefits

What can stablecoins be used for? With the arrival of blockchains and Layer 2 solutions capable of handling large transaction volumes and fast processing speeds, a price-stable cryptocurrency offers a wide range of potential benefits and uses.

Medium of exchange.

A successful stablecoin could be used for everyday spending in the same way we currently use Canadian dollars.

Cross-border payments.

Traditional payment systems for international transfers are slow and expensive, often taking 1-5 business days and involving FX spreads and other hidden fees. A reliable stablecoin offers the potential for instant, low-fee international payments at any time of the day, not just during banking hours, and offers transparency thanks to the fact that all transactions are recorded on the blockchain.

Protection against market volatility.

When the crypto market is experiencing a downturn, shifting your money out of traditional digital currencies and into a stablecoin can help hedge against market volatility. This can be particularly useful if you use a crypto exchange that doesn’t support fiat currency.

Decentralized finance.

Stablecoins could potentially form the basis for a new financial ecosystem, including everything from crypto-backed loans and global remittances to insurance, as they provide the long-term stability required for many financial functions. They’re already widely used on DeFi platforms for lending, borrowing and yield farming.

Global access to a stable currency.

In countries where the local currency is plagued by hyperinflation, holding a decentralized stablecoin could allow people to protect their wealth. Stablecoins also provide the potential for people in countries with limited banking access to send and receive payments, promoting financial inclusion.

Stablecoin regulations

In Canada, regulators treat stablecoins as securities, so they’re regulated in the same way as other investments. But that could potentially be set to change in the future.

In July 2025, the US established its first federal legislation for stablecoins as a form of payment. The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act set up a regulatory system for stablecoins, with a key focus on consumer protection.

The Act requires stablecoins to have 100% reserve backing with liquid assets like U.S. dollars or short-term Treasuries. Stablecoin issuers must also make monthly public disclosures of the composition of their reserves, plus comply with strict marketing rules to avoid engaging in misleading practices. And if a stablecoin issuer becomes insolvent, coin holders’ claims are prioritized over all other creditors.

The new legislation is expected to drive the growth and mainstream adoption of stablecoins, and several other jurisdictions around the world have their own stablecoin regulatory framework in place. But at the time of writing, it remains to be seen whether Canadian regulators will shift their approach to stablecoins and introduce legislation more in line with the US.

What does the future hold for stablecoins?

Tether, the world’s largest stablecoin, has a market capitalization of US$166 billion, while the second largest stablecoin (USDC) has a market cap of US$68 billion. But while the stablecoin industry is already big, many analysts are predicting it to get even bigger.

Citigroup predicts that the total outstanding supply of stablecoins could grow to US$1.6 to $3.7 trillion by 2030. And with the introduction of the GENIUS Act in the US, there have been plenty of headlines about major players breaking into the stablecoin space.

Retailers Walmart and Amazon are reportedly considering establishing their own stablecoins to avoid the high fees they’re subjected to through traditional financial systems. Major banks like JPMorgan Chase, Bank of America, Citigroup and Wells Fargo have held discussions about launching a joint stablecoin.

In June 2025, Shopify announced that it had partnered with Coinbase and Stripe to enable stablecoin payments. Visa and Mastercard have built partnerships to allow them to accept stablecoins, and PayPal already has its own stablecoin, PayPal USD (PYUSD).

But while there’s plenty of excitement around stablecoins, there are also a few risks to be aware of.

What are the risks of stablecoins?

There are a few key risks associated with stablecoins that could pose challenges for individuals as well as the future growth and acceptance of stablecoins:

• Depegging. Just because they’re called stablecoins, that doesn’t necessarily mean they always stay stable. History has shown that coins can lose their peg.
• Collapse. The 2022 collapse of the TerraUSD stablecoin led to a US$60 billion wipeout. The coin’s downfall followed what is sometimes described as crypto’s version of a “bank run”, showing the potential vulnerability of algorithmic stablecoins.
• Custodial risks. With a centralized stablecoin, you need to rely on the coin issuer to keep sufficient reserve assets. Tether and crypto exchange Bitfinex have previously been the subject of a probe by the New York attorney general investigating whether they maintained adequate reserves. iFinex, which owns Tether and Bitfinex, had to pay a US$18.5 million fine to settle the charges.
• Hacking. Security vulnerabilities in smart contracts can make on-chain stablecoins potentially exploitable by hackers. Independent smart contract audits can help test and ensure the security of a particular coin or token.
• Regulatory uncertainty. Stablecoin regulation is still in its infancy. Whether or not there are sufficient oversight and consumer protection measures in place remains to be seen.

How to invest in stablecoins safely

There are a few simple steps you can take to ensure increased protection when investing in stablecoins:

• Watch out for scam coins. Look out for coins with names and ticker codes that are very similar to those of legit stablecoins, but which are actually set up by scammers. Learn more about how to protect yourself in our guide to common crypto scams.
• Research before buying. Research any stablecoin thoroughly before buying. Who are the people behind the coin? Are the supplier’s reserves independently audited on a regular basis? Does the coin have a steady history of maintaining its peg?
• Use a hardware wallet. Don’t leave the crypto you purchase in your exchange wallet, which could be targeted by online attacks. Move your coins or tokens to a wallet for which you control the private keys—a hardware wallet is generally seen as the safest option.
• Use two-factor authentication. Set up two- or multi-factor authentication on accounts and software wallets to ensure an extra layer of security.
• Never share your private keys. You can’t access your crypto without your private key, so don’t share any private keys with anyone else.

Crypto exchanges where you can buy stablecoins in Canada

7 of 7 results

Finder Score	Fiat currencies	Cryptocurrencies	Deposit methods	Disclaimer	bullet point infobox
Promoted 8.8Great Kraken	8.8Great	7	379	Credit card, Cryptocurrency, Debit card, Interac e-Transfer, Wire transfer, Apple Pay, Google Pay	Certain trading features are limited or unavailable to residents of Ontario and Quebec.	Go to site Capital at risk More info Compare product selection Compare	loading
7.7Great Paybis	7.7Great	50	81	Credit card, Debit card, Apple Pay, Google Pay, SWIFT, AstroPay	Go to site Capital at risk More info Compare product selection Compare	loading
8.7Great Bitbuy	8.7Great	1	61	Cryptocurrency, Interac e-Transfer, Wire transfer	Go to site Capital at risk More info Compare product selection Compare	loading
9.7Excellent Coinbase Finder Award	9.7Excellent	1	288	Debit card, Electronic Funds Transfer, Interac e-Transfer, PayPal	Go to site Capital at risk More info Compare product selection Compare	loading
9.4Excellent Crypto.com App Finder Award	9.4Excellent	9	480	Bank transfer, Credit card, Cryptocurrency, Debit card	Compare product selection Compare	loading
7.3Great Coinsquare Cryptocurrency Exchange	7.3Great	5	15	Interac e-Transfer, Wire transfer, Wealth Wire, Rushed Wire, Direct Bank Deposit	Compare product selection Compare	loading
8.7Great Netcoins	8.7Great	1	63	Cryptocurrency, Interac e-Transfer, Bank Wire	Compare product selection Compare	loading

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Finder Score for crypto exchanges

To make comparing even easier we came up with the Finder Score. Supported coins, account fees and features across 28 cryptocurrency trading platforms are all weighted and scaled to produce a score out of 10. The higher the score, the better the exchange—simple.

Read the full methodology

Bottom line

There’s plenty of buzz around stablecoins at the moment, and these digital assets certainly have plenty of potential to shake up traditional payment systems. But there’s still a lot to play out in the stablecoin space, as governments and regulators work out what role these stable cryptos will play in the future financial system.

If you’re thinking of putting any of your hard-earned cash into a stablecoin project, make sure you thoroughly research it first. Then compare crypto exchanges before deciding where to buy.

Frequently asked questions about stablecoins

• Stablecoin meaning—what is the primary purpose of stablecoins?

  Stablecoins are designed to maintain a steady value, providing protection from the price volatility that many cryptocurrencies experience. This offers many potential benefits, including the potential for stablecoins to be used as a reliable medium of exchange and to facilitate fast and cheap international payments.

• What is the biggest stablecoin?

  The biggest stablecoin in terms of market capitalization is Tether (USDT). Tether runs on the Ethereum blockchain and is pegged to the US dollar.

• What was the first stablecoin?

  BitUSD was the first stablecoin and was launched in 2014. This crypto-backed stablecoin was pegged to the US dollar, but it lost its peg in 2018.

• Is Bitcoin a stablecoin?

  No, Bitcoin is not a stablecoin. A stablecoin is a cryptocurrency designed to maintain price stability. Bitcoin is a peer-to-peer form of electronic money, but its value is constantly fluctuating.

• Where can I buy stablecoins?

  This depends on the coin you want to buy. While well-known stablecoins like Tether and Circle are listed on a wide range of cryptocurrency exchanges, many other coins are less widely available. Do your research to find out where you can buy your chosen stablecoin.

Written by

Tim Falk

Writer

Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio

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