--- title: "What Is a Stablecoin, and How Does It Stay at $1?" description: "Stablecoins are crypto tokens engineered to hold a fixed value — almost always one U.S. dollar. They have become the cash layer of crypto markets, with total supply above $300 billion, and are now governed in the U.S. by the country's first federal stablecoin law. Here's how they hold their peg, and how that peg can break." category: "Crypto" category_url: https://boursel.com/category/crypto author: "Priya Venkatesan" published: 2026-06-26T00:48:00.000Z updated: 2026-06-26T00:48:00.000Z canonical: https://boursel.com/article/what-is-a-stablecoin-and-how-does-it-stay-at-1 tags: ["stablecoins", "usdt", "usdc", "crypto", "genius-act"] --- # What Is a Stablecoin, and How Does It Stay at $1? Stablecoins are crypto tokens engineered to hold a fixed value — almost always one U.S. dollar. They have become the cash layer of crypto markets, with total supply above $300 billion, and are now governed in the U.S. by the country's first federal stablecoin law. Here's how they hold their peg, and how that peg can break. Bitcoin's price lurches around. A stablecoin's job is to do the opposite — sit still at $1. How it manages that, token by token, is one of crypto's most consequential bits of engineering. ## The basic idea A stablecoin is a crypto token designed to hold a fixed value, almost always one U.S. dollar. Traders use them as a "cash" position on exchanges — a place to park value without leaving the blockchain — and businesses use them for cross-border payments that settle in minutes. The whole edifice rests on one promise: that the token stays at $1. The industry has three main ways to keep it there. ## Type 1: backed by reserves The simplest model works like a bank deposit. The issuer takes in real dollars and issues one token per dollar held in reserve, redeemable on demand. **Tether (USDT)** and **Circle's USDC** dominate this category and the market overall, together the large majority of all stablecoin supply. Tether, the biggest at well over $150 billion in circulation, backs its tokens mostly with U.S. Treasuries and reports its holdings in quarterly attestations; Circle publishes monthly reserve reports and holds short-dated Treasuries and bank cash. The reserves are everything. If they're high-quality, liquid and verifiable, the peg is sturdy. If they're opaque or risky, the coin is exposed to a classic bank run. Critics note that point-in-time attestations are not the same as a full audit. ## Type 2: backed by crypto Decentralized stablecoins like **DAI** don't rely on a company holding dollars. Instead, users lock crypto into smart contracts to mint the token, and the system demands **over-collateralization** — typically depositing $150 of crypto to borrow $100 of DAI. The extra cushion absorbs crypto's price swings; if collateral falls too far, the protocol automatically sells it to cover the debt. It's transparent and runs on public code — but vulnerable when markets crash faster than the system can liquidate. ## Type 3: backed by an algorithm Algorithmic stablecoins try to hold the peg with software and incentives rather than real reserves. The record is poor. **TerraUSD (UST)**, the largest such coin, collapsed in May 2022: a run on a linked yield program broke its $1 peg, and the mechanism meant to defend it instead minted a flood of its sister token, **LUNA**, in a self-reinforcing "death spiral." Within a week UST fell to about 10 cents and roughly **$45 billion** in value evaporated. ## How a peg breaks: 'depegging' A **depeg** is when a stablecoin trades meaningfully away from $1. Even reserve-backed coins can wobble: in March 2023, Circle revealed that **$3.3 billion** of USDC's cash was stuck at the failed Silicon Valley Bank, and USDC briefly slid to about **$0.87** before the U.S. guaranteed SVB's deposits and the peg snapped back, [CNBC reported](https://www.cnbc.com/2023/03/11/stablecoin-usdc-breaks-dollar-peg-after-firm-reveals-it-has-3point3-billion-in-svb-exposure.html). The episode showed how dependent even well-run stablecoins are on the traditional banking system. ## Why they matter — and the new rulebook Stablecoins are the plumbing of crypto: the main medium of exchange on trading platforms, the settlement layer of decentralized finance, and increasingly a tool for payments in countries with weak currencies. Their scale also makes issuers like Tether sizable buyers of U.S. Treasuries — a novel presence in government-debt markets. In July 2025, the U.S. enacted its first federal stablecoin law, the **GENIUS Act**, [signed by President Trump](https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-president-donald-j-trump-signs-genius-act-into-law/). It requires U.S. payment-stablecoin issuers to hold 100% of reserves in liquid assets like cash and short-term Treasuries and to disclose their composition monthly. The risks it targets are the enduring ones: reserve quality and transparency, the threat of runs, and regulation — much stablecoin supply, Tether included, still sits outside direct U.S. jurisdiction. The peg, in other words, is only ever as good as what stands behind it. ## Sources - [Stablecoin USDC breaks dollar peg after firm reveals $3.3 billion in SVB exposure](https://www.cnbc.com/2023/03/11/stablecoin-usdc-breaks-dollar-peg-after-firm-reveals-it-has-3point3-billion-in-svb-exposure.html) - [Fact Sheet: President Donald J. Trump Signs GENIUS Act into Law](https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-president-donald-j-trump-signs-genius-act-into-law/)