How are they different from regular dollars?

A stablecoin is one more form of a dollar, in the same way that a bill in your wallet is one form and a number in your bank account is another. The difference is where it lives and who controls access to it.

With a bank, your dollars are in the bank's system and the bank controls access to them. A stablecoin can live in a system where you control access directly, without needing a bank in between.

What backs them up?

The most widely used stablecoins are backed one-to-one by real assets. That means for every digital dollar in circulation, there is one real US dollar (or equivalent) held in reserve. These reserves are held by the company that issues the stablecoin, and they are regularly audited by independent firms to verify that the backing is real.

This is different from how banks work. Banks lend out most of the money people deposit. If everyone went to their bank at the same time to withdraw their money, the bank would not have enough. With a one-to-one backed stablecoin, if everyone came to access their money at the same time, it would be there. You can learn more about how these differ in How are stablecoins different from bank deposits?

Who creates stablecoins?

Stablecoins are issued by companies, not governments. The largest stablecoin by market size is USDT, issued by Tether. The second largest is USDC, issued by Circle, a publicly listed US company regulated by the Securities and Exchange Commission (SEC), the main financial regulator in the United States. Circle's reserves are audited by Deloitte, one of the world's largest independent accounting firms.

These companies are responsible for holding the reserves that back each stablecoin and for publishing regular reports proving those reserves exist.

Do stablecoins behave like other cryptocurrencies?

Not really. Stablecoins run on blockchains, which means they can move between people without needing a bank or intermediary to process the transfer. They share that property with cryptocurrencies like Bitcoin. But most cryptocurrencies are not tied to the value of a real asset, which makes their perceived value more speculative. Stablecoins are different because each one is tied to a real dollar and designed to stay at that value.

How do you hold stablecoins?

There are two main ways. You can hold them through a custodian, which is a company that manages your stablecoins on your behalf, similar to how a bank holds your deposits. Or you can hold them in self-custody, which means you control your own funds directly and no one else can access them. You can learn more about the difference in What is self-custody and why does it matter?

Are stablecoins safe?

The safety of a stablecoin depends on the company behind it. Key questions to ask are: is it fully backed by real reserves? Are those reserves audited regularly? Is the company regulated?

Not all stablecoins are created equal. Some are more transparent and more strictly regulated than others. That is why it matters which stablecoin a product or service uses and who issues it.

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