GlossaryTerm · Digital Assets

What is a stablecoin?

By Tokenova Editorial Desk

A crypto token that tries to stay worth exactly one dollar, euro or pound.

4 sources ↓
The front of a US hundred-dollar banknote
Photo: “U.S. hundred dollar bill, 1999” by United States Treasury, Public Domain Mark 1.0 (edited: cropped, colour-graded)

Quick answer

A stablecoin is a crypto-asset designed to keep a stable value against an official currency, usually the US dollar. A single company typically issues it, and its reserves and promise to redeem tokens back the peg⁠[1]. It is not a bank deposit; US law bars FDIC insurance⁠[3].

Key points

  • A stablecoin aims for a fixed value, such as one token = $1, unlike most crypto whose price floats.
  • Its stability depends on the issuer's reserves and its promise to redeem tokens for money.
  • The EU calls a single-currency stablecoin an e-money token; the US calls it a payment stablecoin.
On this page
  1. What does 'stablecoin' mean in simple words?
  2. How is a stablecoin different from a bank deposit?
  3. Is a stablecoin the same as a CBDC?
  4. FAQ
  5. Sources

#What does 'stablecoin' mean in simple words?

A stablecoin is a token on a blockchain that tries to keep the same value as a normal currency. The BIS reports that over 99% of stablecoins are denominated in US dollars, and that most are issued by a single central entity whose reserve assets and capacity to meet redemptions back the promise of a stable value⁠[1]. EU law calls a token that references one official currency an e-money token⁠[2], while US law uses the term payment stablecoin⁠[3].

#How is a stablecoin different from a bank deposit?

A bank deposit is a debt your bank owes you and is insured up to a limit. A stablecoin is a debt a private issuer owes the token holder. US law says payment stablecoins shall not be subject to FDIC deposit insurance and requires issuers to hold reserves of at least 1 to 1⁠[3]. Stablecoins also trade on exchanges, where the price can slip below $1. The full comparison is in stablecoin vs CBDC vs bank deposit.

Worked example

Example

You buy 500 dollar stablecoins for $500 and later redeem them with the issuer at par, receiving $500 back (500 × $1, computed with code). If instead you sold on an exchange while the price had slipped to $0.98, you would receive $490. The peg only holds while people trust the reserves.

Two questions follow. How do you actually pay with one? See how stablecoin payments work. And can a stablecoin pay you interest? Under the GENIUS Act, issuers may not pay holders any form of interest or yield⁠[3] — see can stablecoins pay interest?

#Is a stablecoin the same as a CBDC?

No. A CBDC is a liability of a central bank. A stablecoin is a liability of a private company, so its safety depends on that company's reserves and on the rules it follows. For the full story, including how stablecoins have lost their peg, read what is a stablecoin and MiCA explained.

Frequently asked questions

Do stablecoins pay interest?

Not from the issuer. The GENIUS Act bars payment stablecoin issuers from paying holders interest or yield and takes effect no later than 18 months after its July 18, 2025 enactment⁠[3]; MiCA bans interest on e-money tokens in the EU⁠[4].

Can a stablecoin fall below $1?

Yes. The BIS notes stablecoins trade at an exchange rate that can deviate from par⁠[1].

Sources

  1. Annual Economic Report 2025, Chapter III: The next-generation monetary and financial system — Bank for International Settlements, 2025 Primary
  2. MiCA Article 3 — Definitions — ESMA Interactive Single Rulebook (Regulation (EU) 2023/1114), 2023 Primary
  3. Public Law 119-27 — Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) — US Government Publishing Office (govinfo), 2025 Primary
  4. MiCA Article 50 — Prohibition of granting interest — ESMA Interactive Single Rulebook (Regulation (EU) 2023/1114), 2023 Primary

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