A stablecoin is a token designed to be worth a fixed amount, in almost every case one US dollar. Stablecoins exist because blockchains need a unit of account that does not move while a trade settles, a loan accrues or a payment clears, and because moving dollars between countries and platforms is slower and more restricted than moving a token.
The total stablecoin market capitalization stood at roughly $305.6 billion on 8 September 2026, according to DefiLlama. That figure has grown through every crypto cycle, including the downturns, because the demand for a dollar that settles in seconds is not the same as the demand for crypto price exposure.
How a peg actually holds
A stablecoin does not hold its price because the issuer declares a value. It holds because arbitrage is profitable whenever it drifts. If the token trades at $0.995 and a qualified holder can redeem it with the issuer for $1.00, buying and redeeming earns half a cent per token, and enough people doing that pushes the price back.
That mechanism identifies the thing to check about any stablecoin: who can redeem, how quickly, and in what size. Reserves matter because they make redemption possible, but a fully reserved token whose redemption is slow, restricted to large institutional accounts or suspended in a crisis will trade below par regardless of what the reserves contain.
The four designs
Almost every stablecoin uses one of four approaches, and each has a different failure mode.
| Design | What backs it | Main risk |
|---|---|---|
| Fiat-collateralized | Cash and short-dated government debt held by an issuer | Reserve quality, custodian failure, redemption access |
| Crypto-overcollateralized | Crypto collateral worth more than the tokens issued | Collateral crash outpacing liquidation |
| Synthetic | Spot holdings hedged with short derivatives positions | Funding turning negative, exchange failure |
| Algorithmic | A companion token minted and burned to defend the peg | Reflexive collapse when confidence goes |
Fiat-collateralized
The dominant design. An issuer takes dollars, holds them in cash and short-dated government debt, and issues tokens against them. The reserves earn interest, which is the issuer's revenue, and holders receive none of it. This category accounts for the large majority of stablecoin supply.
The risk is concentrated in the reserves and the custodians holding them. Most issuers publish attestations, an accountant's confirmation that stated reserves existed at a stated moment. An attestation is narrower than an audit: it verifies a snapshot rather than the issuer's controls over time.
Crypto-overcollateralized
A borrower locks crypto worth more than the stablecoins they mint, and a liquidation mechanism seizes the collateral if its value falls too far. The surplus collateral does the job an issuer's cash reserves do elsewhere. Supply expands when people want leverage and contracts when they repay, so it responds to demand rather than to issuance decisions.
Synthetic
A synthetic dollar holds crypto collateral and shorts an equivalent amount in perpetual futures, so the combined position is worth roughly a dollar whatever the collateral does. The funding payments the short earns are passed to holders who stake the token, which is why synthetic dollars pay a yield that fiat-backed tokens do not.
The design substitutes derivatives and exchange risk for custodial risk. It works while funding rates stay positive and the venues holding the short remain solvent, and it needs a reserve fund for the periods when funding turns negative.
Algorithmic
Algorithmic stablecoins attempted to hold a peg by minting and burning a companion token rather than holding reserves. The design failed publicly and completely. TerraUSD lost its peg in May 2022 and fell to $0.044, while its companion token's supply inflated from 343 million to 6.53 trillion units within a week as the mechanism tried to defend the peg by printing. Combined losses exceeded $40 billion.
What depegs look like
The clearest case study is USDC in March 2023. Circle disclosed that $3.3 billion of its reserves, about 8 percent of the total, sat at Silicon Valley Bank, which had just failed. USDC fell to $0.87 over the weekend of 10 to 13 March. The reserves were never lost; the uncertainty was whether they would be recoverable and when. Once US authorities guaranteed the bank's depositors on 12 March, the peg recovered within days.
The episode is instructive because the token was fully reserved throughout. What moved the price was doubt about access to the reserves over a weekend when redemption was not operating. Collateral quality and redemption access are separate questions, and the second one is what trades.
The same weekend also depegged a crypto-collateralized stablecoin whose collateral was substantially denominated in USDC, which is a useful reminder that stablecoins backed by other stablecoins inherit their problems.
What stablecoins are used for
Trading is the most visible use and not the largest by transaction count. Stablecoins function as the settlement layer between exchanges, as the quote currency for most crypto pairs, and as the way a trader holds value between positions without moving to a bank.
Outside trading, the dominant uses are cross-border payment and dollar access. A worker sending money home can settle in minutes for a small fee where a bank transfer takes days, and holders in countries with capital controls or high inflation use dollar tokens as savings. These uses explain why stablecoin supply has grown through crypto downturns rather than shrinking with them.
Regulation
Stablecoins are now regulated in the major jurisdictions rather than existing alongside regulation. The European Union's MiCA regime treats fiat-referenced stablecoins as e-money tokens, requiring issuers to be authorized institutions and requiring significant issuers to hold a substantial share of reserves as deposits across multiple EU credit institutions. Following the enforcement deadline in mid-2026, exchanges serving European users restricted or removed non-compliant tokens.
In the United States, the GENIUS Act was signed in July 2025 and establishes reserve, redemption and licensing requirements, with issuance permitted through federally chartered non-banks, bank subsidiaries, state regulators and credit unions. Implementation has run to a rulemaking timetable with full enforcement expected in 2027. The Bank of England and the Financial Conduct Authority set out a joint approach to systemic sterling stablecoins during 2026.
The practical effect is a widening gap between issuers who have obtained authorization in a given jurisdiction and those who have not, which determines availability more than any technical property of the token.