What is a stablecoin?

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A stablecoin is a type of cryptocurrency pegged to a low-risk asset, like the US dollar, to reduce volatility. It is used in everyday transactions to pay for goods and services, and it has also become a common component of blockchain-based financial services due to its overall speed and security.

With a global market cap of over $200 billion, federal stablecoin legislation is expected to take center stage in 2025, which means now may be a great time to consider adding stablecoin to your portfolio.

What is a stablecoin?

Stablecoins are a type of cryptocurrency whose value is tied to another asset, such as fiat currency like US dollars, another type of low-risk asset like gold or even another form of cryptocurrency. They are typically more stable than your average crypto coin, like bitcoin, and are less vulnerable to market fluctuations. This stability is achieved through pegging, or attaching, the stablecoin to an external asset.

Before you begin investing in cryptocurrency, it is critical to know what a stablecoin is in crypto and how it works to understand how it might suit your portfolio.

Stablecoin uses

Stablecoins are useful in several situations:

• Protection against market volatility. Stablecoins provide greater price stability than other types of high-risk cryptocurrency, especially during market downturns.
• Medium of exchange. Instead of using fiat currency, consumers can use stablecoin to buy other cryptocurrencies.
• Financial products. Thanks to their stability, stablecoins could become the new payment method of choice for everything from crypto-backed loans to insurance.
• Prediction markets. Stablecoin allows investors to better forecast financial outcomes without the constant unknown of market volatility.
• Global access to a stable currency. Stablecoin offers a common form of currency across different countries and economies, especially those subject to hyperinflation.

Compare stablecoins side-by-side

Coin name	Issued by	Launched	Type of stablecoin	Features
AAA Reserve	Arc Fiduciary Ltd	2017	Fiat backed	Backed by cash, gilts and AAA-rated credit investments
AUDRamp (AUDR)	OnRamp Technologies	2018	Fiat backed	Backed by and pegged to AUD
A-Euro	Augmint	Not yet launched	Crypto backed	Pegged to EUR and backed by ETH
Bridgecoin (BRC)	Sweetbridge	Not yet launched	Fiat backed	To be backed by fiat, crypto, IPs, physical assets and more
Basis	Basis	Not yet launched	Seigniorage shares	Prices kept stable by algorithmically adjusting supply
BitUSD (BITUSD)	BitShares	2014	Crypto backed	Backed by BTS and pegged to USD
Boreal	Aurora	Not yet launched	Crypto backed	Backed by ETH and various cryptocurrencies
CarbonUSD	Carbon	Not yet launched	Seigniorage shares	Coin supply algorithmically adjusted based on demand. Pegged to USD
Digix Gold Token (DGX)	Digix Global	2018	Fiat backed	Backed by gold. Each token represents 1g of gold
Dai (DAI)	MakerDAO	2017	Crypto backed	Backed by ETH and pegged to USD
EURS	STASIS Foundation	2018	Fiat backed	Backed by and pegged to EUR
eUSD (EUSD)	Havven	2018	Crypto backed	Backed by ETH and pegged to USD
μFragments	Fragments	Not yet launched	Seigniorage shares	Pegged to USD. Supply inflates and deflates in response to demand
Gemini Dollar (GUSD)	Gemini	2018	Fiat backed	Backed by and pegged to USD
Globcoin (GLX)	RCS	2019	Fiat backed	Pegged to a basket of 15 fiat currencies and gold
HelloGold (GOLDX)	HelloGold Sdn Bhd	2017	Fiat backed	Backed by gold. Each token represents 1g of gold
kUSD (KUSD)	Kowala	Not yet launched	Seigniorage shares	Pegged to USD. Supply expands and contracts depending on market conditions
Monerium	Monerium	Not yet launched	Fiat backed	Backed by USD, EUR and other currencies
NOS (Nollar)	NOS	Not yet launched	Fiat backed	Backed by EUR, pegged to USD/other fiat currency
nUSD (NUSD)	Havven		Crypto backed	Backed by nomins (Havven’s native currency) and pegged to USD
Paxos Standard (PAX)	Paxos Trust Company	2018	Fiat backed	Backed by and pegged to USD
Rockz			Fiat backed	Backed by CHF
Saga (SGA)	Saga Foundation	Not yet launched	Fiat backed	Pegged to the International Monetary Fund's special drawing rights (SDR), which is in turn tied to an underlying basket of currencies
StableUSD	Stably Blockchain Labs	Not yet launched	Fiat backed	Backed by and pegged to USD
Stronghold USD	Stronghold	2018	Fiat backed	Backed by and pegged to USD
SwissRealCoin	SwissRealCoin	2018	Fiat backed	Backed by a portfolio of Swiss commercial real estate
Tether (USDT)	Tether	2014	Fiat backed	Backed by and pegged to USD
TrueUSD (TUSD)	TrueCoin LLC	2018	Fiat backed	Backed by and pegged to USD
USD Coin (USDC)	Circle	2018	Fiat backed	Backed by and pegged to USD
USDVault	Vault	2018	Fiat backed	Backed by gold and pegged to USD
White Standard	The White Company	2018	Fiat backed	Pegged to USD
X8Currency	X8 Currency	2018	Fiat backed	Backed by eight fiat currencies and gold

Types of stablecoins

There are four main types of stablecoin:

1. Fiat-collateralized stablecoins

These stablecoins are pegged to a certain asset that supports their value, such as fiat currency like the US dollar or euro. The entity backing the stablecoin is typically a centralized company responsible for maintaining the reserves that preserve its value. Popular examples of fiat-collateralized stablecoin include USD Coin (USDC) and tether (USDT).

2. Commodity-backed stablecoins

Similar to fiat-collateralized stablecoin, commodity-backed stablecoins are pegged to tangible assets like real estate or precious metals like silver. They offer asset-backed ownership based on the number of stablecoins you purchase. Common examples of commodity-backed stablecoins include tether gold and paxos gold.

3. Crypto-collateralized stablecoins

Crypto-backed stablecoins are pegged to specific cryptocurrencies. However, because crypto is typically more volatile than stablecoins, the ratio is adjusted through overcollateralization, meaning they hold more cryptocurrency in reserves to protect against a market downturn. DAI, mainly linked to ethereum, and sUSD from the Synthetix Network are two popular examples.

4. Algorithmic stablecoins

Also known as non-collateralized stablecoin, this form of stablecoin is based on an automated software algorithm designed to balance supply and demand. It uses a smart contract to adjust the coin supply automatically so its value remains stable. Ampleforth is a popular example of an algorithmic stablecoin today, but these types of stablecoins have proven risky, as seen by the failure of TerraUSD (UST).

Stablecoin regulations

Stablecoin is still a developing system that is growing every day. It falls under the watchful eye of regulators who remain cautious, given its quick escalation in the investment market. Still, the US remains an influential voice in global discussions around the regulation of stablecoin, with efforts underway to provide greater protection for investors and the broader economy.

“As regulation continues to evolve, stablecoins are set to play an increasing role in transforming payments, remittances and DeFi,” predicts S&P Global. “We think that it will be key for issuers and users to stay aware of regional differences, but overall, the trend toward regulatory alignment should simplify adoption and foster growth.”

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Bottom line

Stablecoins offer crypto investors a digital asset with greater stability in market downturns, a medium of exchange to purchase other coins and more. However, it has yet to prove itself over the long term, and, as with any investment, it should be approached with caution.

Consider consulting a financial advisor for personalized advice based on your portfolio, and select a crypto exchange with stablecoin to begin investing.

Frequently asked questions

Is bitcoin a stablecoin?

No, bitcoin is not a stablecoin. While bitcoin is known for its volatility, a stablecoin provides greater price stability by being pegged to another low-risk asset, such as gold or fiat currency.

What is the most popular stablecoin?

Tether (USDT) is the most widely used stablecoin and ranks among the top cryptocurrencies by market capitalization at the time of writing. A popular alternative is the USD Coin (USDC), which is pegged to the US dollar.

Is USD a stablecoin?

USD, as in referring to the US dollar, is not a stablecoin. It’s the official fiat currency of the United States. However, the USD Coin (USDC) is a stablecoin that is pegged to the US dollar and issued by Circle.

What is the point of a stablecoin?

A stablecoin offers a lower-risk way of investing in the crypto market. Because stablecoins are designed to maintain a steady value, they allow investors to focus on long-term growth rather than the constant fluctuations of most cryptocurrencies.