What Are Stablecoins? Stablecoins Explained (2026)

Bitcoin can move 10% in a day. That volatility is fine for speculators, but it makes crypto nearly useless for the things money is actually for: paying salaries, invoicing clients, sending remittances, holding working capital. Stablecoins exist to fix exactly that problem. A stablecoin is a crypto token designed to hold a constant value — usually one US dollar or one euro — so you get the speed and programmability of a blockchain without the price swings.

The idea has gone mainstream. By early 2026 the combined market value of stablecoins sits above $250 billion, and on many days stablecoins settle more on-chain value than Bitcoin and Ethereum combined. Regulators have caught up too: in the EU, MiCA now treats euro and dollar stablecoins as regulated e-money tokens, with authorized issuers and a legal right to redeem at face value.

This guide explains what stablecoins are, the three models used to keep them stable, how pegs are maintained and how they have broken in practice — including the Terra/UST collapse — what MiCA changed in Europe, how stablecoins differ from CBDCs, and a practical checklist of risks. We will also show, briefly, how stablecoins and NGI digital euros power everyday accounts at NGIBANK.

What is a stablecoin, exactly?

A stablecoin is a token issued on a blockchain whose value is pegged to a reference asset — most commonly a fiat currency. One USDC is meant to be worth one US dollar; one EURC is meant to be worth one euro. The token itself moves like any other crypto asset: you can hold it in a wallet, send it to anyone in seconds, and use it in on-chain applications. What differs is the promise behind it: somewhere, somehow, something guarantees that the token can be exchanged for the reference asset at par.

That "somehow" is the entire story. A stablecoin is only as good as the mechanism that backs the peg. Understanding those mechanisms is the difference between holding a well-collateralized digital dollar and holding a promise that evaporates under stress, as holders of TerraUSD learned in May 2022.

It helps to think of stablecoins as the settlement layer between two worlds. Traditional rails like SEPA and SWIFT are trusted but slow and bounded by banking hours. Blockchains are fast and always on, but volatile. A stablecoin puts a stable unit of account on fast rails — which is why remittance firms, payroll platforms and treasury teams adopted them long before most banks did.

The three stablecoin models

Every stablecoin in existence uses one of three basic designs. They differ in what backs the token and who you have to trust.

Fiat-backed stablecoins: USDC, EURC, USDT

This is the dominant model, covering well over 90% of the market. The issuer holds reserves — bank deposits, short-dated government bills, money market instruments — and mints one token for every unit of currency received. Redeem a token and the issuer burns it and wires you the cash. Circle's USDC and EURC work this way, as does Tether's USDT.

The strengths are simplicity and capital efficiency: $1 of reserves backs $1 of tokens. The weakness is centralization. You are trusting a company to actually hold the reserves, to hold them in safe assets, and to honor redemptions. That trust is exactly what regulation and attestations are meant to underpin — more on both below.

Crypto-collateralized stablecoins: DAI

The second model backs the stablecoin with other crypto assets, locked in smart contracts and over-collateralized to absorb volatility. DAI, created by MakerDAO (now rebranded Sky), is the classic example: to mint DAI you deposit collateral such as ETH worth significantly more than the DAI you receive — often 150% or higher. If the collateral's value falls too far, the position is automatically liquidated to keep the system solvent.

The appeal is transparency and censorship resistance: the collateral is visible on-chain in real time, and no single company controls redemption. The trade-offs are complexity, capital inefficiency (you must lock more value than you mint), and residual dependence on volatile collateral. In practice DAI has also come to hold substantial USDC in its reserves, which blurs the line between the models.

Algorithmic stablecoins — and the Terra/UST collapse

The third model tried to hold a peg with no full backing at all, using algorithms and incentive games. TerraUSD (UST) was the flagship: UST could always be swapped for $1 worth of a sister token, LUNA, and arbitrageurs were supposed to keep the price at $1.

In May 2022 the mechanism failed catastrophically. Large UST withdrawals triggered a loss of confidence, holders rushed to exit, and the swap mechanism minted LUNA at an accelerating rate — hyperinflating its supply from hundreds of millions of tokens to trillions within days. LUNA fell from around $80 to fractions of a cent, UST never recovered its peg, and roughly $40 billion of market value was destroyed in about a week. The collapse dragged down lenders and funds across the industry and became the single biggest catalyst for stablecoin regulation worldwide. MiCA effectively bans this design in the EU: tokens claiming a stable value must be backed by real, segregated reserves.

The lesson is blunt: a peg maintained purely by circular incentives works until the moment everyone wants out at once — which is precisely when you need it to work.

How pegs are maintained — and how they break

For a fiat-backed coin, the peg is maintained by arbitrage against a hard redemption promise. If USDC trades at $0.99 on an exchange, arbitrageurs buy it and redeem it with the issuer for $1.00, pocketing the difference and pushing the price back up. If it trades above $1, they mint new tokens for $1 and sell them. As long as redemption is fast, cheap and credible, the market price stays glued to par.

Pegs break when that credibility cracks. The most instructive real-world case was not a fraud but a banking accident: in March 2023, Circle disclosed that $3.3 billion of USDC reserves were held at the failing Silicon Valley Bank. Over a weekend — while redemptions were closed — USDC traded as low as roughly $0.87. When US authorities guaranteed SVB deposits and redemptions reopened on Monday, the peg snapped back within hours. The episode showed both the vulnerability (reserves live in the banking system) and the resilience (a genuinely backed coin recovers once redemption resumes).

Depegs follow a familiar anatomy: a trigger (bad news about reserves, a hack, a banking failure), a liquidity rush (everyone sells into thin order books at once), and then either recovery — if redemption at par is honored — or a death spiral if the backing was never really there. When you evaluate any stablecoin, ask one question first: if I show up on the worst day, can I still redeem at par, and against what?

Reserves, attestations and audits

"Backed 1:1" is a claim, not a fact, until someone verifies it. The industry standard is the monthly attestation: an independent accounting firm confirms that, on a given date, reserves equaled or exceeded tokens in circulation. Circle publishes monthly attestations for USDC and EURC with a breakdown of holdings — overwhelmingly short-dated US Treasury bills and cash for USDC.

Understand what an attestation is not. It is a snapshot, not a full audit; it verifies balances on one day, not controls, ownership chains or what happened in between. Tether, for instance, paid an $18.5 million settlement to the New York Attorney General in 2021 over historical misstatements about its backing, and for years published only quarterly attestations. Its reserves have since shifted heavily into US Treasuries, but the episode explains why regulators stopped relying on voluntary disclosure.

What good looks like in 2026: reserves held in segregated accounts, bankruptcy-remote from the issuer; composition dominated by cash and short-dated government paper; attestations at least monthly from a reputable firm; and, under EU rules, statutory reserve and redemption requirements rather than mere promises.

MiCA and e-money tokens: what changed in Europe

The EU's Markets in Crypto-Assets Regulation (MiCA, Regulation (EU) 2023/1114) gave stablecoins their first comprehensive rulebook in a major jurisdiction. Its stablecoin provisions have applied since 30 June 2024, with the wider regime for crypto-asset service providers in force since 30 December 2024. We cover the full framework in our MiCA regulation guide; here is what matters for stablecoins.

MiCA calls a stablecoin pegged to a single fiat currency an e-money token (EMT). The core rules:

• Only authorized credit institutions or e-money institutions in the EU may issue EMTs to the European public.
• Holders have a legal claim to redeem at par, at any time, free of charge — redemption is a right, not a courtesy.
• Reserves must be fully backing, segregated from the issuer's own assets, and held substantially in secure, liquid instruments, with a defined share in bank deposits.
• Paying interest on EMT balances is prohibited, keeping them payment instruments rather than shadow deposits.
• "Significant" EMTs face stricter capital and liquidity requirements under EBA supervision, and algorithmic tokens claiming stability without real backing are effectively outlawed.

The consequences were visible fast. Circle obtained an electronic money license in France in July 2024, making USDC and EURC MiCA-compliant. Tether declined to seek authorization for USDT, and through late 2024 and the first quarter of 2025 the major exchanges — Coinbase, Crypto.com, Kraken, Binance — delisted or restricted USDT and other non-compliant stablecoins for EEA users to meet ESMA's guidance. In Europe today, the practical stablecoin universe is the compliant one: USDC, EURC and a growing set of euro EMTs.

For users this is a quiet upgrade. A euro stablecoin held via a MiCA-regulated provider is no longer an IOU from an offshore entity; it is regulated electronic money with statutory redemption rights and a supervisor you can complain to.

Stablecoins vs CBDCs: cousins, not twins

Stablecoins are often confused with central bank digital currencies. The difference is the issuer. A CBDC is a direct liability of a central bank — public money in digital form. A stablecoin is a liability of a private issuer, backed by reserves. The ECB's digital euro project is still in its preparation phase, with legislation working through the EU institutions; no euro-area retail CBDC circulates yet in early 2026.

In the meantime, regulated euro stablecoins and tokenized central-bank-grade money do the practical work. NGIBANK's NGI is a central-bank-grade digital currency issued on the Solana network — designed to bring CBDC-style money to fast public rails today, alongside stablecoins like USDC. If you want the full comparison, read our deep dive on CBDCs versus stablecoins and how a digital euro works on Solana.

What stablecoins are actually used for

Strip away the speculation and stablecoins are payments infrastructure. Three uses dominate in practice.

Remittances and cross-border transfers

A traditional international transfer routes through correspondent banks, takes one to five business days, and the World Bank still measures the average cost of sending $200 at around 6%. A stablecoin transfer on Solana settles in roughly 400 milliseconds for a fraction of a cent, any hour of any day. The hard part is the edges — converting to and from local currency — which is exactly the gap regulated on/off-ramps and crypto-friendly banks now fill.

Payroll and freelance income

Companies with international contractors increasingly pay in USDC or EURC: the amount sent is the amount received, on the same day, without each contractor's bank taking a spread. Freelancers invoicing foreign clients avoid the double conversion that eats 3–6% of a typical cross-border invoice. Our crypto payroll guide covers the mechanics and the compliance side.

Treasury and working capital

Businesses operating across currencies use stablecoins to move liquidity between entities instantly, to settle with suppliers on weekends, and to hold dollar or euro balances in jurisdictions with weak banking access. Under MiCA, EMT balances pay no interest — so treasury teams treat them as a settlement asset, not a yield product.

At NGIBANK these rails are wired directly into a bank account: incoming SEPA and SWIFT wires can arrive as digital euros on Solana or as USDC, and you can send SOL, USDC or NGI out as an ordinary wire to any bank account — wire to crypto, crypto to wire. Every account comes with a personal Dutch IBAN, so a client pays a normal European account number and you receive stablecoins, or the reverse. See how receiving wire transfers as crypto works in practice, or explore the basics on the NGIBANK homepage. NGIBANK B.V. is licensed as a crypto-asset service provider under MiCA by the Dutch AFM.

A practical stablecoin risk checklist

Honest answer: stablecoins carry real risks, and "stable" describes the design goal, not a guarantee. Before holding a meaningful balance, check:

• Issuer and license. Is the issuer an authorized EU credit or e-money institution (for euro/dollar EMTs in Europe)? An unlicensed issuer means unenforceable promises.
• Redemption terms. Can you redeem at par, directly, at any time, without fees or minimums? Or only sell on an exchange at whatever the market pays?
• Reserve composition. Cash and short-dated government bills are good. Commercial paper, loans to affiliates or "other investments" are red flags.
• Attestation cadence. Monthly, by a known firm, with a full breakdown — or vague quarterly summaries?
• Depeg history. How did the coin behave in March 2023 or May 2022? Past stress is the best available evidence.
• Counterparty and custody risk. Where do you hold the tokens — self-custody, an exchange, or a regulated institution? Each has a different failure mode.
• Smart contract and freeze risk. Fiat-backed issuers can freeze addresses (a compliance feature, but a risk if you're wrongly flagged); crypto-backed coins carry contract-exploit risk.

None of this makes stablecoins unusable — it makes them like every other financial instrument: safe in proportion to the diligence behind them.

This article is for general information only and is not financial, investment, tax or legal advice. Do your own research and consult a qualified adviser where appropriate.

FAQ: stablecoins explained

What are stablecoins in simple terms?

A stablecoin is a cryptocurrency designed to always be worth a fixed amount of a real currency — typically one dollar or one euro. The issuer holds reserves (cash and short-term government bonds) and promises to swap each token back for real money at face value. You get blockchain speed — seconds, 24/7, near-zero fees — with the price stability of the currency you already use. USDC and EURC are the leading regulated examples in Europe.

Are stablecoins safe to hold?

Reputable fiat-backed stablecoins from MiCA-authorized issuers are far safer than they were five years ago: full reserves, segregated assets, monthly attestations and a legal right to redeem at par. But they are not risk-free. Reserves sit in the banking system (USDC briefly fell to about $0.87 during the SVB failure in 2023), issuers can freeze addresses, and unregulated coins can misstate their backing. Match the coin, the issuer and the custody arrangement to the amount at stake.

What happened to Terra/UST?

TerraUSD was an algorithmic stablecoin backed not by reserves but by a swap mechanism with its sister token LUNA. In May 2022, mass withdrawals broke confidence in the peg; the mechanism minted trillions of LUNA trying to absorb the selling, hyperinflating it to near zero. Around $40 billion evaporated in about a week, several crypto lenders failed in the aftermath, and regulators worldwide moved to require real reserves. MiCA effectively bans unbacked algorithmic stablecoins in the EU.

Can I still use USDT in Europe?

Since MiCA's stablecoin rules took effect, USDT has not been authorized as an e-money token, and major exchanges delisted or restricted it for EEA users by early 2025. Holding USDT in a private wallet is not illegal, but regulated European platforms generally cannot offer it, and liquidity against euros has shifted to compliant coins. For payments and savings in Europe, USDC and EURC — both issued under an EU e-money license — are the practical choices.

What is the difference between a stablecoin and a CBDC?

The issuer. A CBDC is digital money issued by a central bank — a direct claim on the state, like cash. A stablecoin is issued by a private company and backed by reserves it holds. The euro area has no retail CBDC in circulation yet; the ECB's digital euro remains in preparation. Meanwhile, regulated stablecoins and central-bank-grade tokens like NGI on Solana deliver most of the practical benefits — instant, programmable, always-on money — within today's rules.