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Blockchain

July 20, 2026

   

What is a stablecoin? A guide to types, uses and how they work

Stablecoins have been circulating since 2014, but growth has exploded in recent years. Here’s what you need to know.

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Jennifer Lorentz

Senior Managing Counsel, Regulatory, Mastercard

If you’re unwilling to take a ride on the roller coaster of volatile crypto assets like Bitcoin or Ether, stablecoins might be more your speed. As their name suggests, stablecoins are a type of digital asset built to maintain a stable value and serve as a bridge or “on-ramp” between traditional fiat and crypto assets. Stablecoins could come to play a significant role in the future of digital commerce, evolving from trading tools to real-world payment infrastructure. 

 

stable

/ˈstābəl/ • adjective

  1. not likely to give way or overturn; firmly fixed, steadfast.
  2. not changing or fluctuating; unvarying.

 

Although stablecoins have been circulating since 2014, growth has exploded in recent years, and stablecoins now represent 30% of all cryptocurrency transaction volume involving digital assets, over $4 trillion in total, according to a 2025 report from TRM Labs, an 83% increase year over year. Stablecoins are still mainly used for buying or selling crypto assets or making payments across borders, but with increasingly regulatory clarity and legitimacy, it's more likely than ever that businesses and consumers may start to make stablecoin payments in everyday life. 

Growing interest among the traditional financial sector, including both the banking and investment communities, has accelerated focus by governments around the world to develop regulatory frameworks to accommodate this new technology and the novel risks involved. More lawmakers and regulators are actively evaluating the best approach for introducing new rules of road for crypto practices. 

In 2023, the European Union enacted the Markets in Crypto-Assets Regulation (MiCAR), which is in full force as of July 1, 2026, following the expiration of the transitional regime. And on July 18, 2025, the GENIUS Act was signed into law, establishing the first comprehensive federal framework for payment stablecoins in the United States. The legislation is expected to provide greater regulatory clarity, strengthen consumer protections and support responsible innovation and participation in the stablecoin ecosystem.

There’s no denying that the worlds of digist assets and traditional finance are colliding. However, it’s unlikely to be a simple path of progression. Here’s what you need to know.

 

What are stablecoins and how are they different from other cryptocurrencies?

A stablecoin is a type of digital asset usually issued by a private company and transferred through distributed ledger technology, also known as blockchain. Stablecoins initially were developed to facilitate crypto asset transactions and are generally pegged to a stable reference asset like the U.S. dollar. 

A digital asset is any of a variety of digital coins and tokens that represents a form of value or contractual rights. In addition to stablecoins, digital assets include private cryptocurrencies, central bank digital currencies, and tokenized assets like tokenized bonds or tokenized gold.  

The most popular cryptocurrencies, like Bitcoin, are known as free-floating crypto and behave like a commodity, deriving their value from the supply and market demand for the asset. 

Since their value isn’t tied to an asset or algorithm, they often see large shifts in price. Central bank digital currencies are digital versions of paper money issued by a country’s central bank. And tokenized bonds or gold are digital representations of those assets but on the blockchain. 

While stablecoin may take various forms in practice, stablecoin regulation increasingly focuses on single currency-backed stablecoins that must meet strict compliance obligations regarding reserve management, redemption and peg stabilization. 

 

How are stablecoins being used in payments today?

Stablecoins can be used to buy or sell crypto assets, but they increasingly are being used to conduct everyday payments. So how use stablecoins in practice? To make direct stablecoin payments, you hold the stablecoin in a digital wallet, then transfer it to a recipient's wallet via the blockchain. This process often is facilitated by various intermediaries to make the use of stablecoins in payments as simple and seamless as the use of bank money and payment cards.

Crypto cards can also use stablecoins to fund purchases within existing payment networks like Mastercard’s. With stablecoin crypto cards, you can link the stablecoins you hold in your digital wallet with a payment card so that when you make a purchase, the stablecoins can be automatically converted in the local fiat currency at the point of sale. Mastercard has also teamed up with major stablecoin platforms to allow merchants to receive their payments in stablecoins regardless of how a consumer chooses to pay. This can result in faster settlement, helping businesses better manage liquidity.

A major use case for stablecoin payments is cross-border payments, particularly remittances, which enable faster, lower-cost international transactions without traditional banking intermediaries.

Stablecoins are being tested for micropayments to facilitate small-value transactions that are often impractical with traditional payment methods.

In payroll, they can allow employers to pay workers instantly, especially useful for global or remote workforces.

For escrow, stablecoins can provide transparent, programmable holding of funds until contract conditions are met.

With foreign exchange trading, stablecoins can serve as a stable intermediary asset for currency conversions and trading.

 

    

What are types of stablecoins?

  • Fiat-backed stablecoins — Pegged to a single fiat currency, such as the U.S. dollar or Euro, with reserves held to back each coin in circulation 
  • Commodity-backed stablecoins — Backed by physical commodities such as gold or oil and pegged to the assets' market value
  • Crypto-backed stablecoins — Collateralized by other cryptocurrencies, often over-collateralized to account for price volatility
  • Algorithmic stablecoins — Use algorithms to dynamically adjust the supply of tokens based on demand, issuing more coins when prices rise and burning them when prices fall

 

Stablecoins just sound like the digital money I already use in my banking app. What’s the difference?

It’s a great question, and unfortunately the answer is not yet clear. In some ways, stablecoin payments could act exactly like electronic money today, to buy goods and services. 

But there are a few major differences stablecoins could bring to the table, such as transparency — allowing users to see all transactions — and programmability, the ability to add new features or automation since stablecoins are software, not just a digitized form of paper money. They could also be used for paying for things quickly across countries, if people do not need to switch from one currency to another and go through different banking systems.  

Regulators and legislators around the world are evaluating whether stablecoins fit into a preexisting money-like category or whether stablecoins represent a totally new type of money in need of a new regulatory framework. 

 

   

How do stablecoins work?

Stablecoins work by pegging their market value to a stable asset. Because their value does not fluctuate as wildly as free-floating cryptocurrencies, they are more suited for use as a means of payment in everyday transactions and as store of value. 

Once a stablecoin has been issued and pegged to the stable asset, it is then made available to the public via a blockchain ledger, which records who owns it and any transactions they make with it. The value on the ledger is linked to the stablecoin, which means the owner can exchange their stablecoin back to fiat money easily and at the same price.  

Stablecoins have often been utilized as a bridge between more volatile crypto assets and fiat currencies; crypto holders convert bitcoin or ether into a stablecoin to keep the value tokenized on the blockchain without exposing it to the market fluctuations of those crypto-assets.

However, as the industry, technology and regulatory landscape matures and evolves, having stable value in tokenized form makes it more likely for stablecoins to be used in everyday commerce, but it’s not that simple. One of the key outstanding issues for stablecoins centers around just how they maintain that so-called stable value — that is, the mechanisms by which these pegs are controlled and how the value is backed by real value. 

 

 

Can a stablecoin be pegged to other assets?

Yes. Of hundreds of stablecoins in circulation, most currently are pegged to the U.S. dollar, but there increasingly are others pegged to other single fiat currencies, such as the Euro, UAE dirham (AED) and Japanese yen. Stablecoins may also be pegged to non-fiat commodities like gold or oil, other crypto assets, or a basket of fiat currency or cryptocurrencies. While the industry has largely pivoted away from pure algorithmic stablecoins (whereby developers used only an algorithm to manage and adjust the stablecoin’s supply based on demand to help maintain prices stability) following high profile collapses, there remains interest in hybrid, overcollateralized versions.

 

Collateralized … what’s that?

Collateralization is really important.  If a stablecoin is fully collateralized, it means that for every stablecoin in circulation, there is a unit of its reference asset — U.S. dollars or gold, for example — held in reserve by the stablecoin issuer. In other words, the value of a fully collateralized U.S. dollar stablecoin with 1 million coins in circulation would be backed by $1 million in cash and equivalents held in reserve by the stablecoin issuer. Of course, without regulation it can be difficult to know if the issuer of your stablecoin has provided proper collateralization. Regulation is increasingly standardizing requirements around “proof of reserves,” or “PoR.”

 

So … are stablecoins actually stable?

For stablecoins to remain truly stable, the issuer must make an enforceable commitment to issue and buy back the stablecoin at the current value of the asset to which it is pegged, as well as to hold assets backing the stablecoins in circulation as collateral so that they can be redeemed at any time. The risk they could pose to consumers or to markets generally if they are not adequately collateralized is a major concern to regulators, and that's the principal focus of most major stablecoin regulation. 

 

How are stablecoins regulated today?

Beyond the U.S. and EU, jurisdictions including Hong Kong, Singapore, the UAE and Japan have established stablecoin regulatory frameworks, reflecting a growing global trend toward regulatory clarity, reserve safeguards  and prudential oversight for stablecoin issuers.

Key regulatory developments include: 

  • Hong Kong (2025): Hong Kong enacted its Stablecoins Ordinance, establishing a licensing regime for fiat-referenced stablecoin issuers and placing issuance and related activities under HKMA supervision — one of the most comprehensive stablecoin-specific frameworks in Asia.
  • Singapore (2023–2024): The Monetary Authority of Singapore finalized its stablecoin framework, requiring reserve backing, redemption at par, capital requirements and disclosures for qualifying stablecoins, creating a clear regulatory pathway for regulated issuers.
  • United Arab Emirates (2024): The Central Bank of the UAE introduced its Payment Token Services Regulation, creating a licensing framework for stablecoin issuance, custody, transfer and conversion, while imposing reserve and consumer-protection requirements and restricting algorithmic stablecoins.
  • Japan (2023): Japan's revised Payment Services Act established one of the world's first dedicated stablecoin regimes, limiting issuance of fiat-backed stablecoins to regulated entities and creating a framework for redemption rights, consumer protection and oversight.

Despite growing regulatory momentum, stablecoin regulation remains jurisdiction-specific. Markets are increasingly aligned on core safeguards such as reserve requirements, redemption rights and regulatory oversight, but meaningful differences remain in licensing, supervision and market access requirements, requiring firms to navigate a complex and evolving global framework.

 

Wait, aren’t some of these same jurisdications considering issuing their own digital currencies?

Yes, many are. Central banks have been eyeing the rise of both free-floating cryptocurrencies and stablecoins with concern because most believe that, if left unregulated, stablecoins have the potential to destabilize a financial system and risk another worldwide recession like we experienced in 2008. And without regulation, there’s concern from governments that they could also enable illicit financial activity like money laundering and tax evasion. 

Central bank digital currencies — which have been launched in Nigeria and are being piloted in some of the world’s largest economies, including China, South Korea and Saudi Arabia, according to the Atlantic Council's CBDC tracker – would be equivalent in value to a country’s legal tender (dollar bills, for example). They are designed to be used the same way — as a form of digital money that can be used to pay for things, just like private stablecoins. But unlike private stablecoins, CBDCs would be issued by a country’s central bank (like dollar bills) and would carry the same guarantee as paper currency. Some major markets such as the EU are speeding up legislative efforts to issue a CBDC, while the U.S. on the other hand now prohibits the establishment, issuance and use of CBDCs in the U.S., citing risks to financial stability, individual privacy and national sovereignty. 

 

Who are the major players in the stablecoin world?

The major stablecoins players are the issuers of Tether and USDC, the largest stablecoins by total value. Among the more recent entrants: PayPal, which launched its stablecoin in 2023, and Fiserv, which announced last year a new digital asset platform anchored by its own stablecoin. Mastercard, meanwhile, has announced new capabilities and partnerships with many of these players to support multiple stablecoins on its network, scale new uses cases and more deeply embed security and compliance. Some expect banks to launch their own stablecoins, or new digital versions of today’s commercial deposits. But even if banks don’t issue their own stablecoins, it’s likely there will be increasing integration of stablecoin-related services within traditional banks via crypto-bank partnerships. 

In June, a broad consortium of banks and payment networks, including Mastercard, announced it is launching Open USD, a new stablecoin designed to lower costs and improve scalability with the aim to create a more open, interoperable infrastructure for moving money and value across the digital economy. 

This story was originally published Sept. 9, 2021. It was updated July 20, 2026, to address new regulatory movements and additional stablecoin announcements. 

Stablecoins in 90 seconds

Learn how stablecoins work, why they matter and how they could reshape the future of money in this video 101 with the Mastercard Newsroom's Ben Fox Rubin. 

Watch here