A stablecoin is a crypto token built to hold a steady price, most often one US dollar. Where Bitcoin can move several per cent in a day, a stablecoin is meant to be boring.
**Why they exist.** Crypto markets run around the clock and need something to settle trades in that does not swing. Stablecoins also let people move dollar-like value across borders in minutes, without a bank in the middle.
**How the peg is held.** The most common design is a reserve. An issuer holds cash and short-term government debt, and promises that each token can be redeemed for one dollar. If the reserves are real and the promise is honoured, the price stays near one dollar, because anyone can buy a token for less and redeem it for more.
Other designs lean on crypto collateral or on algorithms that adjust supply. These have a worse record, because their stability depends on market confidence holding.
**Where it goes wrong.** A stablecoin is only as good as its reserves, the issuer’s honesty and its ability to pay out when many holders ask at once. If people lose faith, the price can slip below a dollar, and that slip can feed on itself.
**Why regulators care.** Stablecoins now behave a little like money-market funds and a little like bank deposits, without being either. Rules such as the EU’s MiCA set requirements for reserves, redemption and disclosure, and in some places tokens that do not comply are being pushed off regulated platforms.
**What to look for.** Who issues it, what backs it, whether the reserves are independently reported, and whether you can redeem directly or only sell on an exchange. The answers are usually more telling than the logo.
