A stablecoin holds a fixed value against a reference asset — almost always the US dollar or the euro — while moving on a blockchain like any other token. The peg is not a property of the software: any workable stablecoin definition includes the promise to redeem at par and the assets standing behind that promise. Everything else it inherits from cryptocurrency: keys, blocks, and transfers that cannot be recalled.
How do stablecoins work: three ways a peg is backed
Fiat-collateralized is the dominant model: the issuer takes one dollar, mints one token, and holds the dollar in cash and short-dated government paper. Redemption at par anchors the market price, because any discount invites someone to buy cheaply and redeem at face value.
Crypto-collateralized designs lock volatile assets in a contract and over-collateralize heavily, so a token might stand on $150 of collateral that liquidates automatically if the ratio slips — which means the peg depends on the price of the cryptocurrency behind it and on liquidations clearing in a falling market. Algorithmic models try to hold the peg by expanding and contracting supply without full backing; several have collapsed outright.
Reading the reserve report
The question worth asking is not what is stablecoin backing in the abstract, but what sits in this issuer's reserve. Treasury bills maturing in weeks behave very differently from commercial paper or uninsured deposits at a single bank, and issuers vary in how often they attest and who signs the attestation.
Redemption terms deserve the same attention. Direct redemption is often limited to vetted counterparties above a minimum size, with daily cut-offs, which is why ordinary holders exit through the secondary market rather than at the issuer's window.
How a depeg unfolds
Doubt about redemption comes first, then selling into a thin market, then a visible discount. A business holding balances takes a mark-to-market loss and, more painfully, discovers it cannot fund a payout run at the value it assumed. A stablecoin balance is a credit exposure to its issuer rather than a bank deposit, and belongs in treasury management policy on those terms, with issuer and chain limits set in advance.
Where the token beats a wire
Settlement between trading venues is the largest real use, followed by payouts to contractors in countries with poor banking access and by dollar access in high-inflation economies. A remittance sent this way moves in minutes for network fees measured in cents — but the friction has shifted to the ends of the trip, to buying the token and cashing it out locally.
Stablecoin meaning under MiCA
Under the EU's MiCA regime, euro- and dollar-referenced tokens are supervised as e-money tokens, with reserve, redemption and disclosure requirements. That pulls them close to e-money: both are claims on an issuer, backed by segregated funds and redeemable at par. The remaining differences are the ledger they live on and who is allowed to hold them.