Stablecoins are a type of cryptocurrency designed to retain and maintain a stable value. They have been gaining attention in the cryptocurrency market and as a means for making digital payments and transferring funds.

There are still aspects of stablecoins that are not widely understood, including how they work, how they’re used, and their different types. Stablecoins haven’t yet been widely adopted as a common payment method in Japan.

In this article, we explain how stablecoins work and provide information about the different types of stablecoins, their benefits, and the risks of using them in Japan.

What’s in this article?

• What are stablecoins?
  
• Latest developments in stablecoins
  
• Types of stablecoins and how they work
  
• Main uses of stablecoins
  
• Advantages of using stablecoins
  
• Risks of using stablecoins
  
• The future of stablecoins
  
• How Stripe can help
  

What are stablecoins?

Stablecoins are a type of cryptocurrency designed to minimize price fluctuations. While the value of general cryptocurrencies fluctuates significantly based on market supply and demand, stablecoins are pegged to the value of specific assets. For example, stablecoins pegged to the US dollar (USD) are set to trade at roughly $1 USD each.

For companies, what’s important about stablecoins is not their potential as investments, but how they can be used for payments. Stablecoins are issued and transferred on blockchains, allowing transfers at any time. They also offer the advantage of facilitating cross-border fund transfers.

On the other hand, unlike traditional payment methods, stablecoins present unique challenges. These include the issuer’s creditworthiness, stablecoins’ legal status, and how they are handled for accounting and tax purposes.

Latest developments in stablecoins

As digital assets pegged to fiat currencies, stablecoins are expected to be used for payments and fund transfers. However, from the perspective of their impact on the financial system and user protection, regulatory frameworks are still being established.

Below, we examine the major developments, both in Japan and overseas.

Japan: JPYC stablecoin launched in October 2025

The Japanese Payment Services Act was amended in 2025. It clarifies the legal status of stablecoins in Japan. As a result, the government is beginning to establish a framework that enables banks, trust companies, money transfer operators, and other entities to use stablecoins as an electronic payment method.

JPYC is a stablecoin that is designed to maintain a 1:1 value pegged to Japanese yen (¥). It is gaining attention as one of the new digital payment methods available in Japan.

However, it is important to note that JPYC is not issued as a general cryptocurrency. Instead, it is provided under a framework based on Article 2, Paragraph 5 of the Japanese Payment Services Act.

Global: Legal frameworks being established in several countries

Stablecoins have the potential for cross-border use, which has prompted regulatory and institutional frameworks to be developed around the world.

For example, the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) was enacted in the US in 2025. It establishes regulations related to the backing assets and issuers of stablecoins.

The Markets in Crypto-Assets Regulation (MiCA) has also been introduced in Europe. It establishes comprehensive regulations governing the issuance and operation of cryptocurrency and stablecoins.

Hong Kong is also moving forward with a regulatory framework permitting the issuance of stablecoins. The first license is scheduled to be granted in March 2026. Under this system, issuers are required to hold backing assets and manage risks.

Types of stablecoins and how they work

Stablecoins are categorized into several different types based on the mechanisms used to stabilize their value. These are the main types:

• Fiat-backed
  
• Cryptocurrency-backed
  
• Algorithmic
  

Fiat-backed

Fiat-backed stablecoins maintain value stability by holding fiat currencies (i.e., currencies issued by a government)—such as USD—as backing assets or reserve assets. The issuer maintains the value of the issued stablecoin at a fixed rate (e.g., one coin is equal to $1) by holding backing assets, such as deposits or government bonds.

Examples include Tether (USDT) and USD Coin (USDC). Most stablecoins currently in circulation are fiat-backed.

Cryptocurrency-backed

Cryptocurrency-backed stablecoins are issued by depositing cryptocurrencies—such as Bitcoin or Ethereum—as collateral. To collateralize cryptocurrencies with high price volatility, an over-collateralization mechanism is generally adopted, requiring more collateral to be deposited than the amount issued.

A representative example is DAI, which is pegged to USD. DAI is widely used in decentralized finance (DeFi) services where transactions are settled on blockchains.

Algorithmic

Algorithmic stablecoins aim to stabilize value by adjusting supply through an algorithm, without holding collateral assets. When the value deviates from the target, the token supply is adjusted to increase or decrease the value.

For example, if the target price is $1 USD, adjustments are made as follows:

• If the price is over $1 USD, the token supply is increased to lower the price.
  
• If the price is under $1 USD, the token supply is decreased to raise the price.
  

In the past, TerraUSD (UST) and other stablecoins adopted this mechanism. However, there was a case in 2022 where price maintenance failed, leading to significant value declines. It has since been pointed out that algorithmic stablecoins carry structural risks.

Stablecoins are categorized based on their value stabilization mechanisms, with each type exhibiting distinct characteristics in terms of both stability and risk.

Main uses of stablecoins

Stablecoins are designed to peg their value to fiat currencies, making them relatively stable compared to other cryptocurrencies. As a result, they are used for investment purposes and other reasons, such as payments and fund transfers.

We provide the main stablecoins and their primary uses in the table below.

Payment method

Stablecoins are being increasingly adopted as digital payment methods due to their value stability. In particular, blockchain technology is being used in online services and digital platforms.

Fund transfers

Stablecoins can be used for domestic transfers, payments between businesses and individuals, and international fund transfers, such as overseas sales and cross-border ecommerce. Traditional international money transfers require both time and fees. This is due to their reliance on banks and payment networks. On the other hand, stablecoins make relatively quick fund transfers possible through direct payments via blockchains.

Cryptocurrency trading and DeFi

Stablecoins play an important role in cryptocurrency trading and DeFi services because of their stable value.

In cryptocurrency trading, they serve as a stable base currency for direct transactions between highly volatile cryptocurrencies. With stablecoins, users can stabilize the basis for their transactions.

They are also used in DeFi scenarios that require price stability, such as lending and borrowing cryptocurrencies and providing liquidity.

Advantages of using stablecoins

When companies adopt stablecoins as a payment method, they can expect the following advantages:

• Simplified fund transfers: Fund transfers can be made on blockchains, enabling smooth cross-border transfers.
  
• Reduced payment costs: Since stablecoin bypasses traditional payment networks, costs can be lowered.
  
• New user segments: Stablecoin increases the potential to reach users who are unable to use traditional payment methods.
  
• Anytime payments: Since transactions are processed on blockchains, users can make payments and send money at any time, without being restricted by bank hours.
  

Risks of using stablecoins

Stablecoins have gained attention as a new payment method, but their adoption also comes with several risks and challenges:

• Regulatory changes: Stablecoin regulations vary by country and region. It is also important to note that regulatory requirements can change in the future.
  
• Price stability: Stablecoins have mechanisms to stabilize their value, but stabilization methods vary and don’t all maintain the same level of stability. It’s also important to understand that there is a risk of significant price fluctuations when the mechanism doesn’t function properly.
  
• Issuer credit risk: Many stablecoins maintain their value through reserve assets. Therefore, if the management system and transparency of the reserve assets are insufficient, credit risk to the issuer can arise.
  

The future of stablecoins

Stablecoins are expected to be used in the future as a type of digital currency with the following characteristics.

Legal developments

The legal framework related to stablecoins is expected to be further developed in the future. Regulatory efforts to establish rules concerning issuer oversight, reserve asset management, and user protection are expanding. This suggests that stablecoin usage will proceed under clearer regulatory frameworks going forward.

Relationship with central bank digital currencies (CBDCs)

Central banks around the world are advancing research and pilot projects surrounding CBDCs. While stablecoins and CBDCs are both digital currencies, they differ in terms of their issuing entities and purposes. It is anticipated that privately issued stablecoins and central bank-issued CBDCs will coexist in the future, each fulfilling distinct roles.

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 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 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.