What is a stablecoin?
Updated on August 24, 2026 · by Alex
A stablecoin is a digital coin designed to always hold the same value as something else, almost always the US dollar. The issuer holds reserves — usually cash and short-term Treasuries — so it can hand back one dollar for every unit issued.
The dominant model is the most boring one, and the one that has worked: for every unit in circulation, the issuer holds a dollar or its equivalent. If someone wants out, they hand back the unit and receive their dollar. As long as that promise is credible, the market has no reason to pay 0.97 or 1.03 for something worth exactly one.
The key word is credible. Everything depends on what is really in the reserve and on whether somebody independent verifies it. The large stablecoins now publish periodic reserve reports, largely because regulation started demanding it.
There was also a different model, with no reserves, holding the peg through an algorithm and a second coin. It collapsed in 2022 and took tens of billions of dollars with it in a matter of days.
For two reasons that have nothing to do with each other.
The first is practical: they are how money moves inside the crypto world and, increasingly, outside it. In countries with high inflation or restrictions on buying foreign currency, they have become a way to hold savings in dollars without a US bank account.
The second is macroeconomic, and explains why the subject shows up in financial news: issuers are among the largest holders of short-term US Treasury debt. Every dollar that enters a stablecoin ends up, in large part, buying Treasuries. The growth of this market is now a real source of demand for American government debt.
Assuming “stable” means “risk-free”. The risk is not in the price: it is in the issuer. If the reserves are not what they are said to be, or if they cannot be liquidated fast when everyone heads for the exit at once, the peg breaks. It has happened, even to large issuers and for reasons outside their control, such as the failure of the bank holding their cash.
The other mistake is parking meaningful balances there thinking they yield like a deposit. They pay no interest to the holder: the interest on those Treasuries goes to the issuer. You are lending money to a private company, with no state guarantee, and not being paid for it.
