The Digital Poker Chip
Imagine you are at a casino. You walk up to the cage with $100 in cash and exchange it for $100 worth of plastic chips. Those chips are not money in the traditional sense-you cannot use them at the grocery store-but inside the casino, they represent exactly $100. They are easy to move, easy to count, and their value is fixed to the cash you handed over.
A stablecoin works in a similar way, but for the digital world. It is a cryptocurrency-a digital asset that uses blockchain (a shared, digital ledger that records transactions across a network of computers) to track ownership-designed to avoid the wild price swings often associated with digital assets. While other cryptocurrencies might fluctuate in value based on market speculation, a stablecoin is engineered to stay tethered to a stable asset, most commonly the U.S. dollar.
How Do They Stay Stable?
The magic of a stablecoin lies in its stabilization mechanism. To keep the price steady, issuers use different strategies to ensure that for every digital token in circulation, there is a corresponding value held in reserve or managed by code. Think of it as a promise: the issuer guarantees that if you want to trade your digital token back for the underlying asset, they have the means to make that happen.
The Three Main Types
Not all stablecoins are built the same. They generally fall into three categories based on how they maintain their value:
- Fiat-backed stablecoins: These are the most common. They are backed by assets denominated in a fiat currency (government-issued money like the U.S. dollar), typically held by a third-party custodian. The value is tied 1:1 to the backing currency. Examples include USDT and USDC.
- Crypto-backed stablecoins: These are backed by other cryptocurrencies held as collateral. Because the backing assets themselves can be volatile, these are usually ‘over-collateralized’-meaning there is more value in the reserve than the total value of the stablecoins issued-to absorb price shocks, such as DAI.
- Algorithmic stablecoins: These operate without full reserves. Instead, they use complex algorithms to automatically expand or contract the supply of tokens based on market demand, aiming to keep the price stable through supply-and-demand mechanics. This category saw significant instability following the collapse of TerraUSD in May 2022.
Regulation: GENIUS Act and EU MiCA
As the market grew from less than $50 billion to roughly $320 billion by mid-2026 [1], it became clear that stablecoins needed a formal set of rules. The United States took a major step by passing the GENIUS Act into law on July 18, 2025. This legislation establishes a federal licensing regime, mandating that only a Permitted Payment Stablecoin Issuer (PPSI) may issue payment stablecoins in the U.S. [3].
The Act provides a clear framework for the industry by offering specific paths for qualification, including subsidiaries of insured depository institutions, federal-qualified nonbank issuers, and state-qualified issuers [3]. For federal issuers, this status preempts traditional money-transmitter licensing requirements. The Act also requires issuers to maintain 1-to-1 reserve backing with U.S. dollars or short-term Treasuries, defines stablecoins as a medium of exchange rather than an investment asset, prohibits the payment of interest to holders, mandates strict compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) requirements, and requires monthly reserve disclosures [3].
In the European Union, the Markets in Crypto-Assets (MiCA) regulation has reached a critical enforcement milestone. The grandfathering period for crypto-asset service providers concluded on July 1, 2026, meaning stablecoins must now meet specific authorization requirements to be listed on EU exchanges [9]. Under these rules, USDC is authorized as an e-money token and remains available to EU retail customers, while USDT has been delisted from major EU exchanges due to Tether’s lack of MiCA authorization [9]. This regulatory divergence has reshaped the European stablecoin landscape and reinforced the importance of issuer compliance.
Market Dynamics: USDC Surpasses USDT
The stablecoin market has undergone a significant shift in transaction volume leadership. By the first half of 2026, USDC accounted for approximately 70% of adjusted stablecoin transaction volume, compared to roughly 25% for USDT [10]. This represents a reversal from historical patterns where USDT dominated transaction volume. The shift reflects both USDC’s regulatory compliance advantage-particularly its MiCA authorization in Europe-and its growing adoption in institutional and agentic commerce use cases.
The OUSD Consortium
A notable development in the stablecoin ecosystem is the emergence of the OUSD (Open USD) consortium. Comprising over 140 companies-including Visa, Mastercard, Stripe, Coinbase, BlackRock, Google, Shopify, Ripple, and BNY-OUSD is designed specifically for corporate cross-border payments and settlement [11]. The stablecoin is deployed natively on Solana and features no minting or redemption fees for consortium members, with reserve income distributed among partners after a management fee. While the OUSD token was not yet live as of early July 2026, with launch expected by the end of 2026, the consortium represents a significant institutional push toward standardized stablecoin infrastructure for enterprise use cases [11].
Why They Matter: Payments and Commerce
Stablecoins are transforming how value moves across the globe. Traditional correspondent banking-the system banks use to send money across borders-can take days and involve high fees. While stablecoins can settle these same transfers in seconds to minutes on-chain, it is important to note that the total end-to-end time, including fiat on-ramp and off-ramp processes required for KYC and compliance, can be significantly longer [2]. Nevertheless, research confirms that stablecoins can reduce settlement time and costs compared to traditional correspondent banking systems [2].
Beyond traditional remittances, we are seeing the rise of programmable, API-native stablecoins. Because these tokens live on a blockchain, they can be programmed to move automatically. This is emerging as infrastructure for autonomous agent-to-agent and agent-to-merchant micropayments [4]. As AI commerce agents become more common, they require a way to pay for services and goods instantly without human intervention. Protocols like x402 are enabling HTTP-native stablecoin micropayments for these agents [4]. While this remains an emerging infrastructure pattern-with AI-agent payments currently representing a very small fraction of total stablecoin settlement volume-stablecoins provide the ‘digital cash’ that these agent infrastructure systems need to function.