Stablecoins started as a niche crypto product, but now they’re a major part of global commerce. They move hundreds of billions in US dollars (USD) every week. Businesses use them to settle supplier invoices worldwide, pay contractors in underbanked markets, and anchor treasury operations at fintechs.

That kind of speed and reach is useful, but working with stablecoins requires you to understand what they mean for your balance sheet, compliance program, and reputation if something goes wrong. A coin backed by transparent reserves and a strong regulation can work similarly to cash; a coin with murky disclosures or shaky oversight can unravel overnight.

Below, we’ll explore how stablecoins function, their risks, and how to safely adopt them.

What’s in this article?

• What are stablecoins?
  
• How do fiat-backed stablecoins work?
  
• What are the main risks for businesses using stablecoins?
  
• What security concerns do businesses face with stablecoins?
  
• Are stablecoins legally recognized for business use?
  
• How transparent are stablecoin reserves, and why does that matter for businesses?
  
• What are the financial advantages and drawbacks of using stablecoins in business?
  
• What industries stand to benefit most, and why does safety matter differently across them?
  
• How does stablecoin adoption affect cash flow and working capital management?
  
• Can stablecoins be insured or hedged like traditional assets?
  
• How can businesses verify the safety of a stablecoin before adopting it?
  
• What steps should a business take to safely adopt stablecoins?
  
• How Stripe Payments can help
  

What are stablecoins?

A stablecoin is a type of digital currency designed to remain steady in value. It’s usually pegged to something familiar, such as USD. Unlike Bitcoin or Ethereum, which swing in price, stablecoins are built to behave more like cash. For instance, 1 coin should always equal roughly $1 (or 1 unit of what it’s pegged to).

There are four types of stablecoins:

• Fiat-backed stablecoins are pegged to a currency and backed 1:1 by reserves in banks.

• Commodity-backed stablecoins are tied to assets such as gold and shift in value as those prices move.

• Crypto-backed stablecoins are backed by other cryptocurrencies and often overcollateralized to absorb volatility.

• Algorithmic stablecoins rely on programmed incentives and dynamic supply controls instead of reserves. These have a higher risk, as shown by TerraUSD’s collapse.

What matters most is transparency. Reputable issuers publish audits or attestation reports that prove their reserves exist.

How do fiat-backed stablecoins work?

Using a stablecoin looks simple: you can send, receive, and redeem it. Here’s what happens in the background of those transactions:

• Issuance: If you give an issuer $10,000, they’ll mint 10,000 stablecoins and deposit them in your digital wallet. Your dollars go into its reserves, which are usually cash or short-term treasuries.

• Transfers: Once those coins are minted, those coins enter a blockchain such as Ethereum or Solana. Payments settle within minutes and are logged on a public ledger—with no intermediary banks involved.

• Peg maintenance: The issuer holds reserves to stabilize the peg. If the coin trades below $1, traders buy and redeem it for profit to raise its value. If it trades above $1, the issuer can mint more and sell at $1 to lower its value.

• Redemption: If you send back 10,000 tokens, the issuer destroys them and returns your $10,000 from its reserves.

What are the main risks for businesses using stablecoins?

Stablecoins are built for stability, but that doesn’t mean they’re risk-free. Businesses should understand where issues can occur. Here’s what to watch for:

• Reserves and peg stability: If reserves are opaque, not liquid, or mismanaged, the coin’s peg can slip. Even the biggest stablecoins have faced scrutiny. Tether, for instance, was fined in 2021 for making untrue or misleading statements in connection with USDT.

• Regulatory uncertainty: Laws are developing fast. The US and EU require issuers to hold liquid reserves and offer redemption at par, while countries such as China have banned crypto. Global businesses need to address a patchwork of regulations and monitor for changes.

• Liquidity and redemption risk: A stablecoin might be backed on paper, but if everyone tries to cash out all at once and the reserves can’t be liquidated quickly, redemption can stall or break the peg.

• Security and fraud: Stablecoin transactions are irreversible. If you send a payment to the wrong address or fall victim to a phishing scam, the money is gone.

• Compliance: The ease of moving stablecoins across borders draws scrutiny. Businesses must still meet Anti-Money Laundering (AML), Know Your Customer (KYC), and sanctions screening rules. That means updating compliance processes or working with providers that incorporate them.

• Internal complexity: Stablecoins add more moving parts to your financial stack, including wallet integrations, blockchain congestion, and custody choices. A poor setup can cause errors or downtime.

What security concerns do businesses face with stablecoins?

To protect themselves, businesses should treat stablecoins with the same rigor as a vault of cash. The biggest risks relate to how stablecoins are stored and moved. Here’s where businesses should focus:

• Wallets and keys: Whoever holds the digital wallet’s private keys (i.e., the passwords) controls the money. If you lose them, you lose access to the funds. Businesses typically use hardware wallets, multisignature setups, and strict backups to minimize single points of failure.

• Hacks and fraud: Attackers usually target people, not blockchains. Phishing emails, fake websites, and malware can trick your staff into sending funds, and transactions are final and irreversible.

• Administrative error: Enter one wrong digit in a wallet address and money vanishes. QR codes, approved lists, and clear internal processes can help reduce mistakes.

• Custodial risk: If you store stablecoins with an exchange or fintech app, you’re trusting their security and solvency. Some carry insurance, but it’s not as robust as Federal Deposit Insurance Corporation (FDIC) protection. Conducting due diligence on partners is nonnegotiable.

Are stablecoins legally recognized for business use?

Stablecoins aren’t recognized as legal tender, but many countries let businesses use them under existing rules. New regulations are catching up fast.

Here’s the status of stablecoins in different markets:

• US: Businesses can use them. The GENIUS Act set a national framework for issuers.

• EU: Businesses can use them. Markets in Crypto-Assets (MiCA) regulations set licensing rules and oversight mechanisms for issuers.

• Asia: Businesses in countries with crypto regulations, such as Japan and Singapore, can use them. China bans them.

• Latin America: Businesses in countries such as Brazil and Argentina can use stablecoins. Crypto regulations are starting to develop.

• Africa: Businesses in many countries can use them. Some countries such as Nigeria are passing crypto regulations. Other countries such as Algeria ban them.

Globally, stablecoins exist in an ambiguous but narrowing space. Businesses can use them, but they must track local rule changes closely.

How transparent are stablecoin reserves, and why does that matter for businesses?

A stablecoin is only as good as the assets that back it. Transparent issuers open their books: the issuer Circle, for example, publishes monthly reports to show USDC is fully backed by cash and short-term US treasuries. US and EU regulations make transparency mandatory by requiring issuers to disclose detailed information about their reserves.

What’s in the reserves matters, too. Cash and treasuries are safe and liquid, while corporate debt, loans, and other cryptocurrencies are more risky and difficult to liquidate in a crisis. If an issuer relies on those, your “digital dollar” is only as stable as its balance sheet. If reserves are unclear or hard to liquidate, a peg can slip fast. That would diminish working capital for a business that holds money in stablecoins.

What are the financial advantages and drawbacks of using stablecoins in business?

When used smartly, stablecoins can reduce costs and speed up cash cycles. But businesses must balance those benefits against conversion, compliance, and opportunity costs.

Here are advantages and disadvantages of working with stablecoins:

Advantages

• Faster settlement: Payments settle in minutes—any day, any time. That minimizes the funds stuck in transit and gets cash into circulation faster.

• Lower costs: Blockchain transaction costs are low, often from pennies to a few dollars. There are fees for converting stablecoins back to fiat currency, but these are typically still lower than the processing fees for wire transfers or credit cards.

• Global access: Customers who can’t access bank accounts or credit cards can still pay with digital dollars. This opens up sales to new markets.

• Currency stability: In inflation-prone regions, stablecoins preserve purchasing power far better than local money.

• Programmability: Smart contracts automate certain transactions that meet predetermined conditions, which can simplify supply chains or payout systems.

Disadvantages

• Conversion friction: You’ll still need fiat for payroll, rent, and taxes. Off-ramps add cost and create additional work.

• Accounting ambiguity: Stablecoins aren’t usually categorized as cash in records. They’re often labeled intangible assets with different tax treatment.

• Fee volatility: Transfers are cheap most of the time, but costs can peak on congested blockchains.

• Idle balances: Unlike cash in a money market account, stablecoins just sit there unless you take on added risk to pursue yield.

• Peg slip scares: Even reputable coins have dipped briefly below $1 during market stress. That can prove significant for large treasuries.

What industries stand to benefit most, and why does safety matter differently across them?

Stablecoins don’t have the same impact in every industry. Certain industries stand to gain the most from adopting stablecoins, but each has different inherent risks. Businesses must protect themselves accordingly.

• Cross-border businesses: Importers, exporters, logistics firms, and service businesses that pay overseas talent can save days of settlement time and reduce bank fees. Safety means liquidity and compliance—those ensure a $100,000 transfer arrives intact and regulators don’t object.

• Ecommerce and marketplaces: Stablecoins open up whole customer bases in regions that lack reliable access to cards. Safety is largely about avoiding fraud. Because payments are irreversible, there’s no room for payment errors.

• Fintechs and financial services: These businesses use stablecoins to move funds cheaply between markets, offer wallets, and make payouts globally. Their definition of safety is regulatory; they need coins that will maintain compliance.

• High-inflation economies: Retailers and suppliers often use stablecoins as a hedge against volatile local currencies. For them, safety is measured in value stability.

• Supply chains and trade finance: Instant, programmable payments can reduce reliance on credit and letters of credit. Safety means an ironclad assurance that funds won’t vanish during a contract.

How does stablecoin adoption affect cash flow and working capital management?

Stablecoins can change how money flows through a business, mostly by speeding things up. When they’re handled well, stablecoins can shorten working capital cycles and give treasury teams more agility.

• Faster inflows: Stablecoin payments make funds usable within minutes. That shortens days sales outstanding and frees up cash sooner.

• Faster outflows: You can pay vendors or contractors on delivery, even across borders. That can improve relationships and lead to early payment discounts.

• Shorter cycles: Replacing bank wires with stablecoins minimizes the time between paying for goods and getting paid for sales in trade and logistics. That makes more cash available outside the transaction.

• Global treasury efficiency: USD-pegged stablecoins act as a liquid float you can move between subsidiaries instantly. This reduces the need for idle local cash buffers.

Though these are strong advantages, stablecoins also introduce other considerations:

• Conversion to fiat: Payroll, rent, and taxes still require traditional money, so off-ramps need to be reliable and fast.

• Accounting and reconciliation: Finance teams must treat stablecoins as an extra “cash equivalent” account and reconcile it like any other.

• Idle balances: Earning interest on stablecoins adds risk. You could miss out on potential yield, compared with that of bank deposits, without a careful plan.

• Insurance gap: Unlike insured bank deposits, stablecoins have no government backstop. Businesses should avoid storing more funds in them than they need for operations.

Can stablecoins be insured or hedged like traditional assets?

Stablecoins don’t come with the safety nets you get from banks. There’s no FDIC insurance if an issuer fails or your wallet is hacked. Some businesses buy private coverage from specialized insurers or custodians that offer policies against theft or loss, but those can be pricey and typically aren’t comprehensive. If you hold coins through a custodian, check what its insurance covers. Many big issuers also structure reserves in bankruptcy-remote accounts, which are legal safeguards rather than insurance.

Hedging is also limited. For foreign exchange risk, holding a USD-backed stablecoin is the hedge. But if you’re worried about a coin losing its peg, there aren’t mainstream instruments to protect against that. Shorting or buying crypto options is the realm of traders, not most businesses.

The practical approach is to diversify across issuers, keep balances lean, and convert to fiat when you don’t need the coins. Until regulations catch up, you are responsible for risk management.

How can businesses verify the safety of a stablecoin before adopting it?

Think of vetting a stablecoin like vetting a bank: you want to know the money is there, the operator is reliable, and the system won’t break when you need it.

Here’s a checklist for verifying a stablecoin:

• Check reserves: Are there independent attestations or audits that prove full 1:1 backing? Cash and treasuries are good; debt or other crypto is less secure.

• Examine compliance: Is the issuer licensed or operating under oversight? Is it in good standing with regulators?

• Review history: Has the coin held its peg through stress events? Have there been any scandals or fines?

• Evaluate the tech: Does it run on a reliable chain? Are the smart contracts audited?

• Test liquidity: Is it easy to acquire and redeem? Start with a small amount before you commit to wider use.

• Scan the environment: Is it widely listed, integrated, and used by credible businesses?

What steps should a business take to safely adopt stablecoins?

Stablecoins can make your money move faster at a lower cost. But they stay “safe” only if you treat them with the same rigor you’d apply to any other part of your balance sheet. Here are the steps to adopting them with the right precautions:

• Get your team on the same page: Every department—including treasury, finance, and compliance—needs to know how these coins work and where they’ll fit.

• Know the rules where you operate: Tax treatment, reporting, and licensing are different everywhere. Understand the rules to avoid legal trouble.

• Pick your coin carefully: Choose a coin backed by cash and treasuries with regular audits. Using anything else introduces significant risk.

• Decide where you’ll keep the coins: Self-custody involves hardware wallets and multisignature controls. Storing stablecoins with custodians means trusting someone else’s security. Figure out which risks you’re more comfortable taking on.

• Tighten security: You’ll need multifactor approvals, favored addresses, and cold storage for keys. Treat the coins like a vault.

• Plug the coins into your systems: Ensure payments reconcile and your accounting software can handle crypto transactions.

• Run a pilot before you scale: Pay one vendor or accept a handful of customer payments. Work out any problems before you roll the coins out more broadly.

• Keep watching: Monitor reserve reports, regulatory news, and whether the coin maintains its peg.

• Prepare an exit plan: Decide what you’ll do if the coin slips off its peg or faces regulatory issues.

• Communicate clearly: Vendors and customers might need guidance. Don’t assume they know what a stablecoin is.

• Diversify: Don’t store everything in one coin. Spread risk across issuers if exposure is high.

How Stripe Payments can help

Stripe Payments provides a unified, global payment 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 globally that settle as fiat in their Stripe balances.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment user interfaces (UIs) and 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 payment 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% uptime and industry-leading reliability.

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