There are dozens of them, the most popular of which is "Tether." The United States recently imposed regulatory rules on them.
If you put a one-dollar bill under your pillow, you'll get the same bill when you look for it again, and the bill will still be worth one dollar. A class of cryptocurrencies known as stablecoins has emerged based on the idea that this level of reliability can be replicated in new ways.
Stablecoins have become a vital component of the cryptocurrency market, with total trading volumes reaching approximately $260 billion in July of this year. They are also under increasing scrutiny from regulators, who have begun to impose regulations on the sector.
What are stablecoins?
They are digital assets designed to maintain a stable value, unlike the price fluctuations experienced by popular cryptocurrencies like Bitcoin and others. They are often pegged to a traditional currency, usually the US dollar.
Stablecoins are not widely used to purchase goods and services. Rather, cryptocurrency investors purchase them as a secure way to store their profits without having to convert them back into real money. They also serve as a convenient intermediary currency when switching between different digital assets or multiple trading platforms.
There are dozens of stablecoins currently in circulation, the most popular of which is Tether, which can be exchanged for thousands of other cryptocurrencies.
A chart showing the difference between different forms of ancient and modern coins.
How do stablecoins maintain their value?
Most stablecoin issuers say they hold cash or other assets equivalent to the value of the coins in circulation. For example, when a user pays $1 to Tether for a cryptocurrency, that amount is supposed to be held in relatively safe assets such as cash or US Treasury bills.
There are also stablecoins that rely on other cryptocurrencies, trading strategies, or algorithms to maintain their value. For example, USDe, issued by Ethena and one of the largest cryptocurrency alternatives to the digital dollar, uses a version of the hedging strategy known as a "base position" to support its peg to the dollar.
Other stablecoins rely on algorithms to regulate their supply, issuing more coins when their price exceeds the reference value of the asset to which they are pegged, to drive the price down, and reducing the supply when the price falls below the value of the asset to which they are pegged, to push it back up. The appeal of these "algorithmic" coins declined after the collapse of the largest of them, TerraUSD and its sister cryptocurrency, Luna, in 2022, when they together lost approximately $60 billion in market value in just a few days.
Who are the actors?
Tether's USDT and Circle's USDC dominate the stablecoin market, together representing over 80% of the market.
With the widespread adoption of cryptocurrencies, major financial and technology companies have gradually entered the field. Meta Platforms, the parent company of Facebook and Instagram, attempted to launch a stablecoin in 2019, but the project later collapsed due to regulatory resistance around the world. In 2023, PayPal Holdings launched a stablecoin, becoming the first major financial company to take this step.
Digital tokens have also emerged that can function as stablecoins and serve as collateral in trading, such as money market funds linked to cryptocurrencies. Asset management firms such as BlackRock and Franklin Templeton have created such products in recent years.
US President Donald Trump is also involved in stablecoins, having described himself as a "pro-cryptocurrency president" during his election campaign.
What is Trump doing about stablecoins?
The Trump family launched its cryptocurrency venture, World Liberty Financial, in March, launching a stablecoin called USD1. This token trades similarly to other stablecoins: it is pegged to the US dollar, backed by a reserve of cash-like assets, and operates on multiple blockchains where cryptocurrency transactions are recorded.
Last May, World Liberty announced that USD 1 was used by MGX, a state-backed tech investor based in Abu Dhabi, to pay $2 billion for an investment in the cryptocurrency exchange Binance Holdings. This raised concerns about a potential conflict of interest associated with USD 1, both within the United States and internationally. Trump's other cryptocurrency ventures have raised similar concerns, including a promotion that offered the largest holder of his cryptocurrency, Trump, the opportunity to attend a private dinner with the US president.
What are regulatory concerns about stablecoins?
Several senior central bank officials have called for legislation to regulate stablecoin companies in a manner similar to that of banks. They are concerned about the risk of future collapses in these currencies, which could prompt support groups to sell their assets en masse to preserve their peg to real assets, potentially leading to wider market turmoil.
What are stablecoins and why are they a concern for regulators? The answer is here.
But what's even more worrisome is the opposite scenario: stablecoins prove their worth, gain widespread popularity, and allow massive amounts of money to be traded without going through the formal banking system. This could undermine central banks' monopoly on monetary policy and enable criminals to carry out massive money laundering operations.
What are the concerns associated with Tether?
Regulators consider Tether the biggest source of risk in the stablecoin market, both because it is the largest by volume and because its operating company, Tether Holdings, is based outside the United States, specifically in El Salvador. Tether's circulating value exceeded $150 billion in 2025.
The company also has a controversial history, having reached a settlement with US authorities in 2021 over allegations that it lied about its reserves. While most of its reserves currently consist of assets that may be compliant with new US regulations on stablecoins, Tether also backs its currency with assets that would not be permitted under those laws, such as Bitcoin and secured loans. Due to its size, Tether would be subject to federal regulation if it decided to apply for a US license under the new rules.
Who else is concerned about stablecoins?
Concerns are not limited to financial regulators; law enforcement agencies also share them. According to a report released by the Financial Action Task Force last June, most of the illegal activity currently taking place on cryptocurrency platforms involves the use of stablecoins.
A new US framework regulates banks' dealings with cryptocurrencies. More details here.
Because blockchain transactions are fast, cheap, and anonymous, stablecoins are a preferred option for criminals to launder money or commit fraud. The Financial Action Task Force, which comprises officials from major global powers, found that a wide range of illicit actors, including terrorists, drug traffickers, and North Korean hackers, have increased their use of stablecoins since 2024.
What's happening with stablecoin regulation?
Legislation regulating stablecoins has been passed in various parts of the world, including Singapore, Hong Kong, and the European Union. The United Kingdom is developing its own system, which is expected to be ready in 2026. However, the most significant legislation currently underway is the US Stablecoin Steering and Establishing National Innovation Act, also known as the Genius Act, given that most stablecoins are denominated in US dollars and that the United States is one of the largest cryptocurrency markets in the world.
The US Congress passed the law in July and Trump signed it last week. The law grants financial regulators the authority to oversee stablecoin issuers and their reserve management, through strict requirements and oversight aimed at ensuring the stability of cryptocurrencies.
The US Congress passes the first federal legislation regulating stablecoins. The law specifies the types of assets issuers can hold in their reserves and requires licensed entities to publish monthly reserve reports issued by an independent auditor. The law also requires issuers to comply with anti-money laundering and sanctions laws, monitor and report suspicious activity, and have the ability to freeze assets upon request by law enforcement.
Trump had hoped to pass the law this summer, despite the Senate's heated debate over whether the "US Stablecoin Guidance and Establishment of National Innovation Act" was sufficient to address potential conflicts of interest associated with the US president's USD 1 coin.
The law has widespread support within the cryptocurrency industry, which sees it as an important step that gives stablecoins the credibility they need to become part of the mainstream financial system.