Stablecoins are an increasingly popular form of digital currency. In 2024, stablecoin transfer value reached $27.6 trillion. They behave much like standard currency, but travel on modern payment networks that stay open around the clock. Businesses entering the crypto landscape appreciate stablecoins’ price stability paired with the speed and reach of blockchain payments.

Below, we’ll explain what stablecoin in crypto means, how it maintains its value, and why it’s become so important for blockchain-based payments.

What’s in this article?

• What is stablecoin in crypto?
  
• How do stablecoin stabilization mechanisms work?
  
• What systems support stablecoin transfers?
  
• How do stablecoins improve payment efficiency?
  
• How do businesses use stablecoins?
  
• What are the possible risks of using stablecoins?
  
• How Stripe can help
  

What is stablecoin in crypto?

Stablecoin is a type of cryptocurrency that holds a steady price and behaves like standard, trusted currency. Instead of swinging wildly in price the way some cryptocurrencies do, a stablecoin stays close to a target value. It’s often pegged to a major fiat currency such as the US dollar or euro.

When you hold a dollar-pegged stablecoin, you’re essentially holding a digital dollar that can move across the internet as easily as a text message. When you pay someone with a stablecoin, you don’t have to worry that its value will drop by the time it arrives. It’s also usable across borders, without requiring both sides to have local bank accounts or access to the same payment systems.

How do stablecoin stabilization mechanisms work?

Stablecoins use a variety of models that help issuers keep coin prices stable and manage liquidity, while trying to deliver the stability of traditional money via blockchains.

The main types of stablecoins fall into three broad models: fully backed with fiat reserves, backed with onchain collateral, or stabilized through algorithms.

Here’s how stablecoins hold their value:

Fiat-backed stablecoins

An issuer of fiat-backed stablecoins holds real reserves (usually cash or short-term government securities) for every token in circulation. That means 100 million tokens of a USD-pegged stablecoin should be backed by $100 million in regulated financial accounts. This lets holders redeem tokens for the underlying asset, which is what keeps the price pinned close to $1.

When the market price dips slightly below the peg, traders buy the stablecoin at a discount and redeem it for a US dollar, nudging the price back up. When the price rises above a dollar, new tokens can be issued against reserves and sold into the market, which pulls the price back down. The mechanism only works if people believe that the reserves actually exist and are liquid enough to meet redemptions, which is why transparency matters so much in this model.

Crypto-collateralized stablecoins

Decentralized stablecoins use smart contracts to hold their collateral in cryptocurrencies. Because these assets can be volatile, the system requires over-collateralization, so locking up $150 worth of crypto might generate $100 worth of stablecoins. If the collateral falls too far in value, the system automatically sells it to protect the peg.

While this design can be more decentralized and transparent, it’s also more sensitive to market swings and requires a cushion to stay solvent.

Algorithmic stablecoins

Algorithmic stablecoins use programmed incentives to expand or contract supply as the price moves. When the token trades above the peg, the system mints more. When it falls below the peg, the system tries to reduce supply through buybacks or by offering users incentives to lock up or burn tokens.

Algorithmic stablecoins can work while confidence is high, although history has shown how fragile they become when sentiment shifts. The collapse of the major algorithmic stablecoin TerraUSD in 2022 demonstrated that without durable backing, a rush for the exits can overwhelm the mechanism.

What systems support stablecoin transfers?

Stablecoins run on shared digital infrastructure, which is why they move quickly and consistently across borders.

Here are the core systems that make stablecoins work:

• Public blockchains: When you send a payment, the transaction is recorded on a distributed ledger maintained by independent nodes.

• Multiple network options: Stablecoins live on a number of chains (e.g., Ethereum, Solana, Tron). Businesses can choose the network that best fits their cost, speed, and integration needs.

• Wallet infrastructure: Wallets function like accounts for digital assets, but the user controls the keys. Businesses tend to rely on enterprise-grade or custodial wallets that have security protections.

• Abstraction layers: Payments providers such as Stripe can interact directly with the blockchain, so a business can accept stablecoins that settle in fiat without touching the underlying crypto.

• Banking connections: Early pilots suggest that stablecoin transfers could someday plug into traditional banking payment workflows, making them another fast, globally accessible settlement option.

How do stablecoins improve payment efficiency?

Stablecoins’ efficiencies come from how quickly and transparently the value moves.

Here are the key advantages of stablecoins:

• Fast settlement: Transfers often finalize within minutes and don’t depend on banking hours, which helps teams move cash exactly when they need to.

• Lower end-to-end costs: Eliminating correspondent banks and reducing foreign exchange steps keeps cross-border payments cheaper and more consistent.

• Cleaner handling of cross-currency workflows: Sending a USD-denominated stablecoin avoids converting through multiple local currencies.

• Wider reach: Stablecoins are accessible in many underbanked areas, which opens new customer bases and vendors in countries where traditional payment networks are slow or unreliable.

• Recordkeeping clarity: The onchain record gives finance teams a single, timestamped source of truth for every transfer. This can speed up reconciliation, reduce disputes, and support more automation.

How do businesses use stablecoins?

The clearest use cases for stablecoins can be found where your current payment process slows down or gets expensive.

Consider the following use cases:

• Managing currency volatility: Companies operating in high-inflation or unstable-currency markets sometimes use USD-denominated stablecoins as a way to hold value between expenses.

• Global payroll for distributed teams: Stablecoins offer a predictable, near-instant payroll option that many international workers already know how to convert locally.

• Accepting payments from underbanked markets: Stablecoins can serve as a practical alternative in regions where consumers can’t easily pay with cards.

• Reducing drag in international commerce: Stablecoins can simplify and speed up invoicing cycles, and reduce the number of intermediaries involved in moving money across borders.

What are the possible risks of using stablecoins?

Integrating stablecoins into your business strategy should be carefully considered.

Here are the potential risks you need to be aware of:

Reserve and issuer risk

Fiat-backed stablecoins depend on the issuer actually holding the assets they claim to hold. If reserves are mismanaged, illiquid, or frozen by regulators, the peg can slip and redemption can stall. Always closely look at the reporting and disclosures from issuers when considering a stablecoin.

Peg instability

Even well-designed stablecoins can wobble in value if confidence drops or redemptions spike. In extreme cases—especially with partially backed or algorithmic models)—loss of confidence can trigger a break from the peg.

Regulatory uncertainty

Rules differ widely by country, and they’re still evolving. Some jurisdictions treat stablecoins like electronic money, others impose bank-level standards, and some restrict usage altogether. This means your compliance team should dig in before adopting stablecoins, and they’ll have to keep up with developments.

Security exposure

Using stablecoins introduces wallet management, key storage, and smart contract risk. A misdirected transfer, compromised key, or vulnerability in an integration layer can lead to irreversible loss, so many businesses lean on custodial solutions or payment providers to tighten controls.

Compliance requirements

Stablecoins can move across borders without traditional intermediaries, which raises questions about sanctions screening, identity checks, and transaction monitoring. Businesses that use them at scale need processes that mirror the rigor of their existing payment compliance programs for Know Your Customer (KYC) and Anti-Money Laundering (AML) measures.

How Stripe can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world. Businesses can accept stablecoin payments from almost anywhere in the world that settle as fiat in their Stripe balance.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, including stablecoins and crypto.

• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.

• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.

• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.