Stablecoin

Most stablecoins are fiat-backed: an issuer mints tokens when it receives dollars or another currency and holds reserves, typically bank deposits and short-term government securities, against the tokens outstanding. Other designs include crypto-collateralized stablecoins, which overcollateralize with other tokens, and synthetic or algorithmic models, which have proven more fragile under stress.

Stablecoins are the main settlement asset in crypto trading and decentralized finance, and are increasingly used for cross-border payments, treasury management and remittances. Because reserves are concentrated in Treasury bills, large issuers have become meaningful buyers of short-term government debt. Key risks are reserve quality, redemption access, issuer solvency and regulatory status, which differs across the US, EU and other regions.

For allocators, stablecoin growth is a proxy for on-chain liquidity and a source of demand for short-dated Treasuries. Example: an exporter receives payment in a dollar stablecoin and redeems it with the issuer for bank dollars the same day.