Stablecoins Explained – How They Work, Why They Matter, and How to Use Them on Binance
Main Takeaways
Stablecoins are cryptocurrencies designed to offer value stability by being pegged to relatively more stable assets such as fiat currencies or commodities.
These versatile digital assets are used in trading, payments, remittances, and DeFi, and also provide a less volatile entry point for newcomers to crypto.
Binance’s diverse stablecoin offerings, including USDC and FDUSD, among many others, reflect our dedication to enhancing the overall user experience on our platform.
Welcome to our beginner’s guide to stablecoins, where we zoom in on this unique staple of the cryptocurrency landscape.
In this blog, we explore the fundamental concepts of stablecoins, their role in the crypto ecosystem, and explore various stablecoins prominent in the market, including USD Coin (USDC) and First Digital USD (FDUSD), among others.
We’ll also discuss the benefits and challenges they present, provide insights on selecting a stablecoin, and showcase how we’re integrating these assets to broaden your trading horizons.
What Are Stablecoins and How Do They Work?
Stablecoins are a type of cryptocurrency designed to offer price stability in a highly volatile market. Unlike bitcoin or ether, stablecoins are pegged to relatively stable assets, typically fiat currencies like the U.S. dollar or commodities like gold.
This pegging mechanism helps them maintain a predictable value, making them ideal for:
Everyday transactions
Trading and hedging
Protecting against market volatility
Top Stablecoins in the Crypto Market
Here are some of the most widely used stablecoins in the market today:
Tether (USDT)
USD Coin (USDC)
Dai (DAI)
USD1 (USD1)
First Digital USD (FDUSD)
As of June 2025, these five tokens collectively hold a market capitalization of more than $220 billion, reflecting their significant footprint across the crypto landscape and wider financial ecosystem.
How Do Stablecoins Stay Stable?
Stablecoins maintain their value through different mechanisms, all designed to keep them “pegged” to a reference asset. The three most common models are fiat-collateralized, crypto-collateralized, and algorithmic:
1. Fiat Collateralization: These stablecoins are backed 1:1 by fiat reserves held in custodial accounts. Their value is maintained by ensuring that each token can be redeemed for a fixed amount of fiat, usually USD. This model is widely used and relies on regular audits for reserve transparency.
2. Over-collateralization with Crypto: Some stablecoins use other cryptocurrencies as collateral. To account for the volatility of the backing crypto assets, they are often over-collateralized, meaning the value of the cryptocurrency held as collateral (and/or in reserve) is greater than the value of stablecoins issued. Smart contracts manage reserve ratios and liquidate collateral if needed to maintain the peg.
3. Algorithmic Control: Rather than using reserves, algorithmic stablecoins rely on code-based supply adjustments. When the price rises above the peg, more tokens are issued; when it falls below, tokens are removed from circulation. This model uses incentives and automated responses to stabilize value.
How USDC and FDUSD Maintain Their Peg
Fiat-backed stablecoins like USD Coin (USDC) and First Digital USD (FDUSD) use a simple and trusted model to preserve their peg:
1 token = 1 U.S. dollar held in reserve
Reserves stored with regulated financial institutions
Regular third-party audits or attestations published
High usage across exchanges, DeFi protocols, and remittance networks
Strong focus on transparency and regulatory compliance
What Are Stablecoins Used For?
Stablecoins play a foundational role in the broader crypto economy, acting as a reliable bridge between potentially volatile digital assets and the stability of traditional currencies. Because their value is pegged to assets like fiat currencies, stablecoins enable a wide range of financial use cases — from everyday trading to cross-border payments and decentralized lending.
Crypto Trading
Stablecoins are essential tools for crypto trading. They serve as a stable unit of account, allowing traders to quickly exit or re-enter positions without needing to convert back into fiat.
By acting as base pairs across thousands of markets, stablecoins simplify portfolio management, reduce exposure to volatility, and help traders calculate profits and losses more precisely.
Lending & Borrowing in DeFi
In decentralized finance (DeFi), stablecoins are commonly used as both lending assets and collateral.
Their predictable value makes them ideal for borrowing and lending protocols, where price fluctuations could otherwise trigger liquidations.
Users can lend stablecoins to earn yield or borrow other crypto assets against their stablecoin holdings, often without intermediaries.
Payments & Remittances
Stablecoins offer a fast, low-cost alternative to traditional payment and remittance services. Where banks and wire services can take days and charge high fees, stablecoins enable near-instant transfers with minimal costs.
And because their value remains consistent, the amount sent is typically the amount received — a crucial benefit in volatile currency environments or emerging markets.
Benefits of Using Stablecoins
Stablecoins offer a unique blend of price stability and blockchain utility, making them essential tools in both traditional crypto trading and the emerging DeFi economy. Pegged to assets like the U.S. dollar, they provide a more predictable entry point for users in volatile markets or those new to crypto.
Benefits of Stablecoins
Market Stability: Stablecoins help mitigate price volatility, providing a reliable store of value during market swings.
Efficient Transactions: With fast settlement times and low fees, they are ideal for payments, remittances, and global transfers.
DeFi Utility: Their stable value makes them suitable for lending, borrowing, liquidity provision, and yield farming, reducing the risk of liquidation compared to more volatile crypto assets.
Accessible On-Ramp: For newcomers, stablecoins act as a familiar, fiat-linked gateway into the world of crypto.
Challenges and Risks of Stablecoins
While stablecoins offer many advantages, they also come with trade-offs that users should understand. Regulatory complexity, limited reserve transparency, centralized control, and asset dependency can all affect how stablecoins perform and are perceived.
Regulatory Complexity: Varying regulations across jurisdictions may impact how stablecoins are issued, redeemed, or used – particularly for fiat-backed tokens. Emerging regulatory frameworks in markets like the European Union and U.S. promise to improve clarity, but legislation and regulatory practice will take time to take shape.
Transparency and Reserves: Not all stablecoins disclose full reserve audits. Lack of transparency can raise concerns about whether tokens are truly backed as claimed.
Centralized Control: Many stablecoins are managed by centralized entities. While this allows for smoother operations and compliance, it introduces risks such as mismanagement or custodial failure.
Asset Dependence: Since stablecoins are pegged to underlying assets (like USD), macroeconomic shifts or changes in monetary policy can indirectly affect their perceived value or utility.
How to Choose the Right Stablecoin
With dozens of stablecoins available in the market, choosing the right one can directly impact your crypto trading, DeFi participation, or remittance activity.
Whether you’re seeking stability, transparency, or broad usability, here are the core factors to consider when evaluating a stablecoin:
Market Reputation
Reputation is a strong indicator of reliability. Look for stablecoins with
High market capitalization
Widespread exchange listings
Strong track record of consistent performance
Stablecoins like USDC and USDT are widely recognized and used across centralized and decentralized platforms alike.
Underlying Asset & Collateral Model
Understand how the stablecoin maintains its peg:
Fiat-backed (e.g. USDC, FDUSD) – typically more predictable
Crypto-backed (e.g. DAI) – more decentralized, but with exposure to market volatility
Algorithmic – supply-adjusted models not backed by reserves
Knowing what backs your stablecoin helps you assess its risk profile and intended use case.
Regulatory Compliance
Check whether the stablecoin issuer complies with applicable financial regulations:
Are they registered or licensed?
Do they follow anti-money laundering (AML) and know-your-customer (KYC) protocols?
Is the stablecoin legally redeemable?
Regulatory alignment increases trust and reduces the risk of future disruption or delisting.
Transparency and Audits
Transparency is key to trust. Choose stablecoins that:
Regularly publish attestation or audit reports
Clearly disclose reserve holdings
Use independent third-party auditors
The more visibility you have into a stablecoin’s operations, the better you can assess its actual stability.
Ecosystem Integration
Consider how widely supported the stablecoin is across:
Crypto exchanges
Wallet providers
DeFi protocols
Payment gateways
A well-integrated stablecoin gives you greater flexibility across use cases, from trading and staking to savings and payments.
Stablecoins on Binance: Integration, Trading, and Benefits
At Binance, we recognize the strategic importance of stablecoins in the global crypto economy.
Whether you're trading, sending funds, or participating in DeFi, stablecoins offer speed, cost-efficiency, and value stability — all critical for a seamless user experience.
By supporting a wide range of stablecoins, Binance helps users access:
Instant exchange and settlement tools
Deep liquidity across major trading pairs
Efficient portfolio management through stable, fiat-pegged assets
New and Expanding Stablecoin Options on Binance: USDC, FDUSD, USD1, XUSD, EURI
To meet the evolving needs of our global user base, Binance supports a growing roster of trusted stablecoins, each offering unique benefits tied to fiat currencies or specific regional use cases.
Recent additions include:
USD1: New spot trading pairs added to enhance flexibility for USD-linked transactions.
StraitsX USD (XUSD): Launched in March 2025, designed for users in Southeast Asia.
Eurite (EURI): A EURO-backed stablecoin listed in August 2024, expanding our support for EUR-based trading.
First Digital USD (FDUSD): Introduced in July 2023, with strong emphasis on transparency and compliance.
USD Coin (USDC): Continuously expanding support across spot and derivatives markets.
This expansion reinforces Binance’s commitment to providing access to diverse, high-quality stablecoins across global markets.
How to Use Stablecoins on Binance
Binance has launched a series of new stablecoin integrations across Spot, Margin, and Perpetual Futures, making it easier than ever to trade with stability, flexibility, and low fees.
USDC-Margined Perpetual Contracts: Introduced on January 3, 2024, for BTC, ETH, and more, offering an alternative to USDT-margined futures.
New USDC Spot Pairs: Added in December 2023: ADA/USDC, DOT/USDC, MATIC/USDC, XRP/USDC and extended in January 2024 with SUI/USDC, TIA/USDC.
Zero-Fee Trading Initiatives: XUSD (March 2025) and EURI (August 2024) launched with zero-fee promotions on Spot; FDUSD rolled out with zero maker fees and expanded to six Spot/Margin pairs including DOGE/FDUSD, SOL/FDUSD, XRP/FDUSD.
Through these integrations, Binance gives users greater control, more trading options, and lower transaction costs – all while preserving the value stability that makes stablecoins a core part of the crypto experience.
Final Thoughts
Stablecoins combine the stability of traditional currencies with the speed and utility of blockchain technology, making them a core pillar of today’s crypto ecosystem. From seamless trading to borderless payments and DeFi participation, their versatility continues to unlock new possibilities for users around the world.
At Binance, we’re committed to supporting a diverse and growing range of stablecoins, helping users access deep liquidity, manage volatility, and expand their investment opportunities.
Whether you're just getting started or optimizing an advanced trading strategy, our stablecoin integrations are designed to make crypto more accessible, efficient, and reliable for everyone.
Further Reading
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