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- A stablecoin is a crypto asset designed to maintain a stable value relative to a reference asset such as the U.S. dollar, according to SEC staff.
- The market price of a stablecoin on secondary markets can fluctuate from its redemption price.
- The GENIUS Act requires 100% reserve backing with liquid assets like U.S. dollars or short-term Treasuries, according to the White House fact sheet.
Most crypto prices swing hard. Stablecoins are built to do the opposite: hold a fixed value, almost always one U.S. dollar. Traders use them as a parking spot between trades and as a way to move dollar value on a blockchain. Whether a particular stablecoin actually stays stable depends on how it is built, and on rules that changed in 2025.
What a stablecoin is
The SEC’s Division of Corporation Finance described stablecoins in an April 2025 statement as crypto assets designed to maintain a stable value relative to a reference asset, such as the U.S. dollar or another currency, a commodity like gold, or a basket of assets. Most are designed to track that reference one-for-one. They can be held in fractions: half a dollar stablecoin represents 50 cents.
Two ways to stay stable
| Design | How it tries to hold the peg | Main risk |
|---|---|---|
| Reserve-backed | Issuer holds assets in a reserve and redeems coins one-for-one | Whether the reserve is really there, liquid and sufficient |
| Algorithmic | Code increases or decreases supply in response to demand | Depends on the mechanism working as designed |
The SEC staff statement notes that the risks of stablecoins vary significantly depending on their stability mechanism and on whether, and how, a reserve is maintained. The two designs should not be treated as equivalent just because both are called stablecoins.
How the peg works in practice
For a reserve-backed coin, the issuer sells new coins for one dollar each and redeems them for one dollar each, funding redemptions from the reserve. The SEC staff explain that the market price on trading platforms can still fluctuate from the redemption price. What pulls it back is arbitrage by parties allowed to deal directly with the issuer: if the coin trades above a dollar, they create new coins and sell them; if it trades below, they buy coins cheaply and redeem them for a dollar.
One detail matters for ordinary holders. The staff statement notes that in some cases only designated intermediaries can redeem directly with the issuer. Everyone else can only buy and sell on secondary markets. If you cannot redeem directly, your exit price is whatever the market pays at that moment.
Tip: A stablecoin is not a bank deposit. The FTC’s general warning about crypto applies: crypto held in accounts is not insured by the government like dollars in an FDIC-insured bank account. Read the issuer’s redemption terms and reserve disclosures before holding large amounts.
The SEC staff view on covered stablecoins
In the April 2025 statement, the Division of Corporation Finance gave its view that the offer and sale of what it called covered stablecoins, in the circumstances it described, do not involve securities. Covered stablecoins in that statement are designed for payments, money transmission or storing value, are backed by low-risk, readily liquid assets in a reserve worth at least the value of coins in circulation, and are minted and redeemed one-for-one with dollars without limit. The statement is a staff view, not a rule of the Commission.
The GENIUS Act
In July 2025 the President signed the GENIUS Act, which the White House described as creating the first federal regulatory system for stablecoins. According to the White House fact sheet, the law:
- Requires 100% reserve backing with liquid assets like U.S. dollars or short-term Treasuries.
- Requires issuers to make monthly public disclosures of the composition of their reserves.
- Gives stablecoin holders’ claims priority over all other creditors if an issuer becomes insolvent.
- Subjects issuers to the Bank Secrecy Act, with anti-money laundering, sanctions and customer identification programs.
- Requires issuers to be able to seize, freeze or burn stablecoins when legally required.
- Aligns state and federal frameworks for stablecoin regulation.
Laws of this kind are implemented through regulations over time. Check the current status with the regulators named in the law before assuming every protection is already in effect for a given coin.
Stablecoins and taxes
For U.S. tax purposes the IRS treats digital assets as property, not currency. Swapping one crypto asset for another, including for a stablecoin, is a disposition that can produce a capital gain or loss, according to IRS guidance. Moving into a stablecoin to step out of a volatile coin can therefore be a taxable event. See Crypto Taxes in the US: What Is Taxable and How Much.
Questions to ask about any stablecoin
- Is it reserve-backed or algorithmic?
- What assets are in the reserve, and how often is that disclosed?
- Can you redeem directly with the issuer, or only sell on a platform?
- Who regulates the issuer?
- What happens to holders if the issuer fails?
Stablecoins reduce one risk, price swings, but not the others covered in Crypto Volatility and Risk: What Regulators Warn About. How platforms that list them are overseen is in How Crypto Exchanges Are Regulated in the US.