A stablecoin is a CryptocurrencyCryptocurrencyA digital currency secured by cryptography and recorded on a shared ledger, with no bank or government issuing or controlling it. designed to keep a stable price. Most track the US dollar, so one coin should always be worth about one dollar. Stablecoins combine some advantages of crypto, such as fast transfers at any hour, with the stability of a traditional currency.
How do they hold their price?
- With a reserve. The issuer holds assets, mostly cash and short-term government debt, for every coin and promises to redeem it at face value. The two largest stablecoins, Tether's USDT and Circle's USDCUSDCA stablecoin issued by the US company Circle that tracks the US dollar, so one USDC should always be worth about one dollar., work this way.
- With crypto as collateral. More crypto is locked up than the value of the coins issued.
- With an algorithm. Code tries to hold the price by creating and destroying coins. This type has proved unreliable.
What can go wrong?
A stablecoin is only as sound as what stands behind it. In May 2022 the algorithmic stablecoin TerraUSD lost its link to the dollar and collapsed within days. Even coins backed by a reserve can lose their peg for a while if doubts arise about the reserve.
A stablecoin is not a bank deposit, and no deposit guarantee covers it.
Stablecoins and MiCA
Under the EU's MiCAMiCAThe EU regulation on markets in crypto-assets, in force in Iceland since 1 January 2026, which sets the same rules for crypto services across the EEA. regulation, which applies in Iceland, stablecoins that track a single currency are classed as e-money tokens. Only licensed credit institutions and e-money institutions may issue them, and holders have the right to redeem them at face value.
Everything in Myntkaup Learn is written and regularly reviewed by the Myntkaup editorial team. It is for education and is not investment advice. Editorial policy. Updated 18 October 2026.