What are stablecoins?

A stablecoin is a crypto token designed to keep a steady price, usually one US dollar. The largest, USDT (Tether) and USDC (Circle), say each token is backed by cash and short-term US government bonds held in reserve.

People use stablecoins to move dollars quickly across borders, to trade on crypto exchanges, and to hold a dollar-like asset outside the banking system. That last use worries central banks in countries such as Pakistan, because it can pull savings out of the local currency.

A stablecoin is only as good as its reserves and its issuer. If people doubt the reserves, they rush to redeem and the price can break from one dollar, as happened to several tokens in 2022 and 2023. Regulators including the BIS and the IMF have warned that large stablecoins need bank-like rules on reserves and redemption, and the EU now regulates them under its MiCA law.