A stablecoin promises to be worth one dollar. Whether it stays that way depends on what’s behind it, and since 2025, on federal rules.
What to know
- Most stablecoins aim to be worth $1 and are backed by cash and short-term U.S. government debt.
- Algorithmic stablecoins without real reserves have collapsed, most famously TerraUSD in 2022.
- The GENIUS Act, signed July 18, 2025, requires U.S. payment stablecoin issuers to hold one-to-one reserves.
- Stablecoins aren’t bank deposits and aren’t covered by FDIC insurance.
A stablecoin is a crypto token designed to hold a steady value, usually one U.S. dollar. They’re widely used to move money between crypto platforms and, increasingly, for payments.
Three designs
| Type | How it tries to stay at $1 | Track record |
|---|---|---|
| Reserve-backed | The issuer holds cash and short-term Treasury bills equal to the coins outstanding | The most common type; generally stable, with brief dips during stress |
| Crypto-collateralized | Users lock up more crypto than the stablecoins they create | Works if collateral is managed well; can be liquidated in crashes |
| Algorithmic | Software and trading incentives, without full reserves | TerraUSD collapsed in May 2022, wiping out tens of billions of dollars |
The GENIUS Act
The Guiding and Establishing National Innovation for U.S. Stablecoins Act became law on July 18, 2025, creating the first federal rules for “payment stablecoins.” Among its requirements:
- One-to-one reserves in cash, deposits and short-term Treasury securities and similar safe assets.
- Monthly disclosure of reserve composition, with regular independent examination.
- Licensing: issuers must be approved by federal or qualifying state regulators.
- No interest or yield paid by issuers to holders.
- Priority for holders if an issuer goes bankrupt.
Most of the requirements take effect on the earlier of January 18, 2027, or 120 days after regulators publish final rules. Until then, rules vary by issuer and state.
Red flag
Stablecoins are not bank deposits. If an issuer fails, you’re relying on its reserves and on bankruptcy law, not FDIC insurance. If a platform pays you interest on stablecoins, ask where the yield comes from, because the answer is usually lending.
Practical points
- Check the network. The same stablecoin can exist on several blockchains; sending it over the wrong one can mean losing it.
- Know who holds it. Stablecoins on an exchange are subject to that exchange’s solvency; see when exchanges fail.
- Watch for impostors. Scammers create tokens with names and logos that mimic well-known stablecoins.
Stablecoins are also the currency of choice in many crypto investment scams, where victims are told their “deposits” are safe because they’re in dollars.
Common questions
Can a stablecoin lose its peg?
Yes. Even reserve-backed stablecoins have briefly traded below $1 during market stress, such as when a bank holding reserves failed. Ones without solid reserves can collapse completely.
Do stablecoins pay interest?
The GENIUS Act bars payment stablecoin issuers from paying interest or yield to holders. Platforms that offer yield on stablecoins are usually lending them out, which adds risk.
Is holding a stablecoin the same as holding dollars in a bank?
No. A bank deposit is insured by the FDIC up to the legal limit; a stablecoin is a claim on the issuer and its reserves.
This guide explains how crypto and the related rules work for readers in the U.S. It is not investment, tax or legal advice, and it doesn’t recommend buying or selling any asset. Crypto prices are highly volatile, and laws and agency guidance change; check current official sources and consider professional advice.