Stablecoins: How They Work and What the Data Shows
Stablecoins are the most used product in crypto. We explain how different designs keep their peg, what backs them and what on-chain data says about supply and payments.
Stablecoin Exchange Reserve: About $76 Billion Sitting on Exchanges
Every few months, a new headline tells us stablecoins are taking over payments. Salaries, remittances, supplier invoices, all moving on-chain. Some of that is true. But…
What is a stablecoin?
A stablecoin is a token designed to keep a stable value, usually one US dollar. Stablecoins move dollars on blockchains around the clock and are the main settlement asset for crypto trading and DeFi. Increasingly they are also used for cross-border payments, payroll and card spending.
Types of stablecoins
| Type | What backs it | Main risk | Examples |
|---|---|---|---|
| Fiat-backed | Cash and short-term government bonds held by an issuer | Issuer, custodian and banking risk | USDT, USDC |
| Crypto-collateralised | Over-collateralised crypto locked in smart contracts | Collateral crashes, smart-contract bugs | DAI / USDS |
| Synthetic (delta-neutral) | Crypto plus hedged derivatives positions | Funding rates, exchange counterparty risk | USDe |
| Algorithmic | Supply mechanisms rather than full collateral | Loss of confidence leading to a collapse | TerraUSD (failed in 2022) |
How the peg is maintained
For fiat-backed stablecoins, the peg holds because approved customers can redeem one token for one dollar with the issuer. Market makers buy below $1 and redeem, or mint and sell above $1. Crypto-backed designs rely on liquidations: if collateral falls in value, positions are closed before the system becomes under-collateralised. When these mechanisms fail or redemptions are paused, a stablecoin can “depeg”.
Regulation
Stablecoins are now regulated in several major jurisdictions. In the EU, the stablecoin rules of the MiCA regulation have applied since June 2024. In the United States, the GENIUS Act, signed in July 2025, created a federal framework for payment stablecoins. These rules cover reserves, redemption rights and disclosure, which shapes which stablecoins are available where.
What we analyse
- Stablecoin supply and its growth across chains.
- Exchange reserves – how many stablecoins sit on exchanges, a rough indicator of available buying power.
- Payment adoption, from card programmes to merchant settlement.
- Reserve reports and depeg events.
Stablecoins in payments
Stablecoins are increasingly used outside crypto trading. Card programmes let users spend stablecoins at regular merchants, businesses use them for cross-border settlement, and some fintech apps use them to move dollars between countries in minutes. Our research looks at how much of this activity is real payment flow and how much is simply trading between exchanges.
For users, the practical differences between stablecoins are liquidity on their preferred chain, support by exchanges and wallets, and the issuer’s redemption terms.
Risks to keep in mind
A stablecoin is only as good as its backing and redemption process. Issuers can freeze addresses, reserve reports are not the same as full audits, and smaller stablecoins may have thin liquidity. Holding a stablecoin is not the same as holding insured bank deposits.
Frequently asked questions
Are stablecoins safe?
Risk depends on the design. Fiat-backed stablecoins depend on the issuer’s reserves and redemption policy; crypto-backed ones depend on collateral and smart contracts; algorithmic designs have historically been the most fragile.
How do stablecoin issuers make money?
Fiat-backed issuers mainly earn interest on the reserves – such as short-term Treasury bills – that back the tokens.
What does stablecoin exchange reserve mean?
It is the amount of a stablecoin held in exchange wallets. Analysts watch it as a rough indicator of buying power available on exchanges.
This page is for educational purposes only and is not financial, investment or tax advice. Crypto assets are volatile and you can lose all of the money you invest.
