Key takeaways
- A stablecoin is a cryptocurrency designed to keep a stable price, usually one US dollar per coin.
- Most stablecoins are backed by assets such as cash and government bonds. USDT and USDC are the largest (as of October 2026).
- A stablecoin can lose its link to the dollar, as when TerraUSD collapsed in 2022, so it matters who issues it and what backs it.
- In the EEA, stablecoins that track a single currency are e-money tokens under MiCA, and the issuer must be licensed.
Contents
A stablecoin is a cryptocurrency designed to keep a stable price, usually one US dollar per coin. The price is tied to a currency or another asset, usually because the issuer holds dollars or government bonds against every coin in circulation.
Stablecoins are widely used for trading crypto and for sending dollars across borders. This article explains how they work, what the risks are and how European rules deal with them.
Why do stablecoins exist?
The prices of most cryptocurrenciesCryptocurrencyA digital currency secured by cryptography and recorded on a shared ledger, with no bank or government issuing or controlling it. swingVolatilityHow much and how quickly the price of an asset moves up and down. a lot. That is impractical if you want to pay for something, park money between trades or make an agreement that runs for a month.
Stablecoins solve this by tracking an ordinary fiat currencyFiat currencyGovernment-issued money whose value rests on law and trust rather than gold, like the Icelandic króna. such as the US dollar or the euro. They are a kind of digital dollar that can be sent on a BlockchainBlockchainA public ledger where transactions are grouped into blocks, each linked to the one before, so past records can't be altered without it showing., anywhere and at any time of day. Their total value runs to hundreds of billions of US dollars.
How do they stay stable?
Stablecoins are usually divided into three groups, depending on what keeps the price stable.
Backed by currency
The issuer takes in dollars and issues the same number of coins. Against each coin it holds assets, such as cash in a bank and short-term US government bonds. You should be able to hand the coin back and get dollars in return.
It works a bit like a gift voucher. The voucher is worth as much as the shop's promise to accept it, and a stablecoin is as trustworthy as its issuer and the assets behind it. USDC and USDT belong to this group.
Backed by crypto
Here other cryptocurrencies, such as ether, are locked up as collateral in a smart contractSmart contractA program that runs on a blockchain and automatically carries out what it was written to do once certain conditions are met.. Because their price swings, the collateral has to be worth more than the coins issued. For example, USD 150 in ether might back USD 100 in stablecoins. If the collateral falls too far in value, the smart contract sells it automatically. DAI and its successor, USDS, are examples.
Algorithmic
Algorithmic stablecoins try to keep the price stable with an algorithm that increases or reduces the supply, often with the help of a sister coin. Little or nothing backs them. This type has proved the least reliable, as the collapse of TerraUSD showed.
USDT and USDC
USDT (Tether) was the largest stablecoin in October 2026. In 2021 the US Commodity Futures Trading Commission (CFTC) fined its issuer, Tether, USD 41 million. The reason was that between 2016 and 2019 Tether had falsely claimed that USDT was fully backed by dollars. Tether is not on the European Securities and Markets Authority's (ESMA) register of e-money token issuers under MiCA.
USDCUSDCA stablecoin issued by the US company Circle that tracks the US dollar, so one USDC should always be worth about one dollar. (USD Coin) was the second largest and is issued by the US company Circle. The assets behind USDC are mostly held in a money market fund that invests in short-term US government bonds, plus cash at large banks. In Europe, USDC is issued by Circle's French subsidiary. It is licensed as an e-money institution and has issued USDC under MiCA since 1 July 2024. Read more in What is USDC?
What are the risks?
The link can break
If people start to doubt the assets behind a stablecoin, its price can fall below one dollar. This is called a depeg. In March 2023 the US bank Silicon Valley Bank failed while holding USD 3.3 billion of USDC's reserves, about 8% of the total. The price of USDC fell to 86 cents before recovering, once the US authorities guaranteed the bank's deposits.
The TerraUSD collapse of 2022
TerraUSD (UST) was an algorithmic stablecoin that was supposed to hold its value through a sister coin, LUNA. Interest of up to 20% was offered on it. In May 2022 UST lost its link to the dollar, and within days the prices of both UST and LUNA fell close to zero. According to the US Securities and Exchange Commission (SEC), about USD 40 billion in market value was wiped out. Do Kwon, co-founder of Terraform Labs, the company behind TerraUSD, was sentenced to 15 years in prison in the United States in December 2025.
The lesson is clear. High yields and promises of stability without real assets behind them are warning signs.
The issuer and the rules
A stablecoin is never more trustworthy than the company that issues it. If the assets aren't there, or the issuer runs into trouble, the coin can lose its value. The issuers of USDC and USDT can also freeze coins held at specific wallet addressesWallet addressA string of letters and numbers you give out to receive crypto, much like a bank account number., for example at the request of the authorities. The rules for stablecoins are still taking shape, both in Europe and in the United States, which passed a dedicated stablecoin law in July 2025.
Exchange rate risk
A stablecoin that tracks the dollar is stable in dollars, not in krónur. If the dollar weakens against the króna, the coin's value in krónur falls too.
How does MiCA treat stablecoins?
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 applies in Iceland through Act No. 101/2025, which took effect on 1 January 2026. Within the EU, its rules on stablecoins have applied since 30 June 2024. MiCA splits stablecoins into two groups:
- E-money tokensE-money token (EMT)A stablecoin that tracks a single official currency, such as the dollar or the euro. Under MiCA, only banks and e-money institutions may issue one. (EMTs) track a single official currency, such as the US dollar or the euro. USDC is an e-money token.
- Asset-referenced tokensAsset-referenced token (ART)A crypto-asset that aims to keep a stable value by referencing other assets or a mix of them, such as several currencies, gold or other crypto-assets. (ARTs) track other assets or a basket of assets, such as several currencies or a commodity.
E-money tokens come with strict rules:
- Only banks and e-money institutions may issue them.
- The issuer must issue the tokens at par value and redeem them at any time at par value.
- The issuer may not pay interest on the tokens.
- At least 30% of the funds must be held in bank deposits, and the rest in safe assets in the same currency.
Coins that try to stay stable purely through an algorithm, with no assets behind them, don't get this protection. ESMA has also stated that crypto-asset service providersCASP (crypto-asset service provider)A company licensed under MiCA to provide crypto-asset services, such as buying, selling, custody or transfers. in the EEA should not offer services involving stablecoins that don't comply with MiCA. Read more about MiCA.
USDC at Myntkaup
USDC is the base currency of Myntkaup accounts. When you transfer krónur from your bank, they are converted automatically to USDC at Arion Bank's general selling rate for US dollars, with no added spread. You buy crypto with USDC, and when you sell, you receive USDC.
When you withdraw to an Icelandic bank account, USDC is converted to krónur at Arion Bank's general buying rate, with no added spread, and each withdrawal has a fixed fee of 7 USDC. USDC can't be deposited or withdrawn on-chain at Myntkaup. See the fees page and the article What does it cost to buy crypto? for more on costs.
Keep in mind that while you hold USDC, its value in krónur moves with the dollar exchange rate.
Frequently asked questions
Is a stablecoin the same as a digital króna or euro from a central bank?
No. A central bank digital currencyCentral bank digital currency (CBDC)Digital money issued directly by a central bank, the electronic equivalent of banknotes and coins. is issued by a central bank. A stablecoin is issued by a private company. In the EEA, issuers of e-money tokens need a licence and must hold reserves under MiCA.
Do stablecoins pay interest?
Under MiCA, issuers of e-money tokens are not allowed to pay interest. If someone offers a high yield on stablecoins, the money is usually being lent out or used for something else, with the risks that come with it. TerraUSD came with promises of up to 20% interest before it collapsed.
Are there stablecoins in euros?
Yes. Circle, for example, issues EURC, which tracks the euro and is authorised under MiCA. Euro stablecoins are much smaller than those that track the dollar, though.
Closing thoughts
Stablecoins are digital dollars or euros on a blockchain. They make it easier to trade crypto and to send money across borders, and how reliable they are depends on the assets and the company behind them.
Find out who issues a coin, what assets back it and whether it is authorised under MiCA. Remember too that stability in dollars is not stability in krónur. Go through the risks before you buy and read up on the basics of crypto.
