Deciphr Academy
Track 5 · Module 22 · Lesson 1 of 7 · 6 min read

What is a stablecoin, and why do people use them?

Short answer

A stablecoin is a crypto token that aims to keep a stable value, usually one US dollar.1,2 People mostly use them to trade other crypto and, more recently, to make payments and to hold dollars.3,2

Three ways to aim for $1.00Fiat-backedcash and T-billsCrypto-backedlocked crypto, over 100%Algorithmicfew or no reservesa company holdsthe reservessmart contracts holdthe collateralrules changethe supplySame peg, very different machinery
Fig. 1. Three ways to try to hold a peg: reserves of cash, locked-up crypto, or rules alone.

A token that aims to hold its value

The Financial Stability Board (FSB), which coordinates the work of national financial authorities at the international level, defines a stablecoin as a crypto-asset that aims to keep a stable value against a set asset, or a pool or basket of assets.1 A 2021 report by US regulators gives a similar definition: a digital asset designed to keep a stable value against a national currency or other reference asset.3

In practice, that reference is almost always the US dollar. The Bank for International Settlements (BIS), which supports the world's central banks, says stablecoins promise a stable value against currencies that are "overwhelmingly the US dollar".2

The value a stablecoin aims for is called its peg.4 A dollar stablecoin aims for one token to be worth one dollar. How it tries to stay there is called its stabilisation mechanism.4

Three main designs

A 2022 note by Federal Reserve staff sorts stablecoins into three groups.4

Design What backs it Covered in
Off-chain collateralised, often called fiat-backed Bank deposits and other cash-like assets held off the blockchain, such as Tether (USDT) and USD Coin (USDC)4 Lesson 2
On-chain collateralised, often called crypto-backed Crypto locked in smart contracts, usually worth more than the tokens issued4 Lesson 3
Uncollateralised, or algorithmic No external assets; rules try to match supply to demand4 Lesson 4

What people use them for

  • Trading crypto. In 2021, US regulators said stablecoins were mainly used to trade, lend and borrow other digital assets.3 The Fed note said over 80% of trading volume on major crypto exchanges had a stablecoin on one side of the trade.4
  • Payments. Supporters believe households and businesses could widely use stablecoins to pay for things.3 The 2025 US law on stablecoins defines a "payment stablecoin" as a digital asset used, or designed to be used, for payment or settlement, whose issuer must redeem it for a fixed amount of money.5
  • Holding dollars. The BIS says stablecoins give access to foreign currencies, overwhelmingly the US dollar, for people in countries with high inflation, capital controls or limited access to dollar accounts. It also notes their use for cross-border payments by people in emerging economies who lack access to the dollar.2

How big is the market?

On 22 October 2026, the data firm RWA.xyz showed stablecoins worth $290.82 billion in total, across 124 stablecoins it tracks.6 The two biggest were Tether's USDT, at about $181.9 billion, and Circle's USDC, at about $70.9 billion.6

How to read market figures

Market figures change every day. We give the date we read each one and the firm that published it.6 Check the source for today's number.

Not the same as money in the bank

The BIS points out a key difference from bank money. Each stablecoin is tagged with the name of its issuer, a bit like private banknotes in 19th-century America.2 So stablecoins from different issuers can trade at slightly different prices.2

The BIS gives an example. You might receive 10 "red dollars" on your phone, next to 10 "blue dollars" and 10 "white dollars" from other issuers.2 Each is a claim on a different company.2

A stablecoin is also not a bank deposit. The US law's definition of a payment stablecoin leaves out deposits, and it says payment stablecoins are not covered by federal deposit insurance.5 Circle's terms say USDC held in a Circle account has no deposit insurance protection.7

Our viewA stablecoin is a promise to hold a peg. The rest of this module is about what stands behind that promise, and what happens when it is tested.
WatchStablecoins: what backs them, how they break and the new rules, in about two minutes. Captions are built in. Sources are listed at the end.
Sources
  1. High-level Recommendations for the Regulation, Supervision and Oversight of Global Stablecoin Arrangements: Final report. Financial Stability Board, 17 July 2023.
  2. Annual Economic Report 2025, Chapter III: The next-generation monetary and financial system. Bank for International Settlements, 29 June 2025.
  3. Report on Stablecoins. President's Working Group on Financial Markets, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, November 2021.
  4. The stable in stablecoins (FEDS Notes). Board of Governors of the Federal Reserve System (Garth Baughman, Francesca Carapella, Jacob Gerszten and David Mills), 16 December 2022.
  5. Public Law 119-27: Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). US Congress, via the US Government Publishing Office, 18 July 2025.
  6. Stablecoins (live market data). RWA.xyz, read 22 October 2026 (figures change daily), 22 October 2026.
  7. USDC Terms. Circle, last updated 15 October 2026; read 22 October 2026.
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General education built from the publicly available sources listed above. Not financial, legal, tax or investment advice. Naming a company, project or regulator is not an endorsement either way. Last checked 2026-10-22. Terms and disclaimer.