What Is a Stablecoin? How Stablecoins Work, the Main Types and the Risks

A stablecoin is a crypto-asset designed to keep a steady value by tracking something else, usually a single currency such as the US dollar or the euro. It moves on a blockchain like any other token, but its price is meant to stay close to one unit of that currency. "Designed to" is the important part: a stablecoin is not cash, not a bank deposit, and not guaranteed to hold its value.

This guide covers what a stablecoin is, how the common types keep their value, what the EU's Markets in Crypto-Assets Regulation (MiCA) changed, and how to compare stablecoins without relying on marketing.

Key takeaways

• A stablecoin is a crypto-asset that aims to hold a stable value by referencing a currency, a basket of assets or another value.
• Under MiCA, a stablecoin that references one official currency is an e-money token (EMT). In the EU, only credit institutions and e-money institutions can offer one to the public.
• Holders of an EMT have a claim against the issuer and a right to redeem at par value, at any time.
• Neither the issuer nor a crypto-asset service provider may pay you interest on an EMT.
• Stablecoins can lose their peg. They are not covered by deposit guarantee schemes.

What is a stablecoin?

The European supervisory authorities describe a stablecoin as a crypto-asset that "purports to maintain a stable value by reference to one asset (e.g. a fiat currency) or several assets", and add a warning: stablecoins "may not be so stable overtime, especially in stressed market conditions."

MiCA, the EU regulation that has applied to stablecoins since 30 June 2024, does not use the word stablecoin as a legal category. It sorts them into two types:

• E-money tokens (EMTs) reference the value of one official currency, for example one euro or one US dollar. USDC and EURC are examples.
• Asset-referenced tokens (ARTs) reference another value or right, or a combination, which can include several currencies, commodities or other crypto-assets.

Everything else, including bitcoin and ether, falls into a third bucket of "other" crypto-assets. That one is regulated differently and has no promise of a stable price at all.

How do stablecoins keep their value?

Most stablecoins in use today are backed by reserves. The issuer takes in money, creates the same value in tokens, and holds assets such as bank deposits, short-term government debt or money market fund shares against them. When a token is redeemed, the issuer pays out the money and destroys the token.

MiCA writes the core of this into law for EMTs. The issuer must create tokens at par value and only when it receives funds. On request from a holder, it must redeem them at any time and at par, paid in funds other than e-money. Redemption cannot carry a fee, except where the issuer has activated its recovery plan.

Redemption is also what keeps the market price close to the peg. If the token trades below one unit on an exchange, firms with direct access to the issuer can buy it cheaply and redeem it at par, which pushes the price back up. In practice that direct redemption is often limited to businesses: Circle, for instance, says its Circle Mint redemption service is not available to individuals or small businesses, who use exchanges and other platforms instead.

Some designs try to hold a peg without reserves of ordinary money, using other crypto-assets as collateral or automated supply rules. They are a different risk proposition. Read how a token is backed before you treat it as stable.

What MiCA changed for stablecoins in the EU

MiCA made issuing a stablecoin in the EU a regulated activity. The main effects for users are these.

Only authorised issuers. An EMT can be offered to the public or admitted to trading in the EU only by a credit institution or an e-money institution. The European Securities and Markets Authority (ESMA) publishes the authorised issuers in its interim MiCA register, which it updates weekly.

A legal right to redeem. Holders of an EMT have a claim on the issuer and a right to redeem at any time, at par value. The issuer has to state its redemption conditions in the token's white paper.

No interest. Issuers may not grant interest on EMTs, and crypto-asset service providers may not grant interest when they provide services related to EMTs.

Pressure on unauthorised stablecoins. In January 2025 ESMA said national supervisors should make sure crypto-asset service providers stopped offering trading in stablecoins whose issuers were not authorised in the EU, no later than the end of the first quarter of 2025. In October 2026 it went further: providers should stop offering services related to non-MiCA-compliant stablecoins to EU clients, and clean up existing exposures within three months, with only limited wind-down activity allowed.

The result is that which stablecoins you can use depends on where you live and which provider serves you. We wrote about the earlier stages of this shift in how MiCA reshaped stablecoins in Europe.

What are stablecoins used for?

Stablecoins sit between ordinary money and crypto. People use them to:

• hold a dollar or euro value on a blockchain without leaving the crypto ecosystem;
• move value between platforms and wallets at any hour;
• send value across borders, where the alternative may be a slow or expensive bank route;
• price and settle trades in other crypto-assets.

Whether a stablecoin is cheaper than a bank transfer depends on the network fees, the conversion costs at each end and the platforms involved. Our comparison of stablecoins and traditional FX transfers walks through that maths.

What are the risks of stablecoins?

Losing the peg. A stablecoin can trade below its reference value, especially under stress. In March 2023 USDC fell below one dollar after Circle disclosed that about $3.3 billion of its reserves sat at Silicon Valley Bank, which had failed. The gap closed once the deposits were confirmed as available, but it showed that reserve-backed tokens carry banking risk too.

Issuer and reserve risk. Your claim is on the issuer. How well that claim holds up depends on what the reserves are, where they sit and how they are reported.

No deposit protection. A stablecoin is not a bank deposit. Deposit guarantee schemes do not cover it.

Transfer risk. Blockchain transfers generally cannot be reversed. The same stablecoin often exists on several networks, and sending it on the wrong one can mean losing it.

Availability risk. A token you hold can become unavailable on a platform if its regulatory status changes, as happened in the EU with stablecoins from unauthorised issuers.

How to compare stablecoins (and what "best stablecoin" really means)

There is no single best stablecoin. A sensible comparison asks the same questions of every token.

1. Who issues it, and is it authorised where you live? For the EU, check whether the issuer appears in ESMA's register of e-money token issuers. A missing issuer is a strong signal that EU providers will not offer it.
2. What backs it? Read the issuer's reserve description: cash, government debt, money market funds or something riskier.
3. How is it reported? Look at how often reserve reports come out, who prepares them and what kind of report they are. An attestation is a point-in-time check, not a full audit.
4. Who can redeem directly, and on what terms? The white paper should set out redemption conditions. Many issuers serve only businesses directly.
5. Which currency do you actually need? A dollar stablecoin carries exchange-rate risk if you spend in euros. See our explainer on EURC and euro stablecoins.
6. Which networks does it run on, and which does your platform support? The network determines fees and where you can send it.
7. What happened under stress? Look at how the token behaved during past market shocks.

If you want a direct comparison of the two largest dollar tokens, read USDC vs USDT. For the reasons we originally picked USDC for our app, see our earlier USDC piece.

Stablecoins in Quppy

Quppy Crypto is a custodial wallet and exchange inside the Quppy app. For eligible users, USDC on the Ethereum network is available, including in the EEA, subject to country, provider and account configuration. USDC on Solana is listed as coming soon. USDT is not available through Quppy to users in the EEA. Outside the EEA it can be available on Ethereum and TRON, depending on country and provider.

In the EEA, custody, exchange and crypto-transfer services available through Quppy are provided by Payhound Limited, a crypto-asset service provider authorised under MiCA by the Malta Financial Services Authority. Quppy is the technology layer, not a bank, and does not guarantee that a stablecoin will always be worth exactly one dollar. Check the supported assets and networks before you send anything.