Stablecoins explained: how they keep their value, the risks, and the new rules

Most crypto prices swing wildly. Stablecoins are designed not to. They’re tokens that aim to stay worth a fixed amount, most often one US dollar, so that people can move value on a blockchain without being exposed to crypto’s volatility.

They’ve become the plumbing of the crypto market: people use them to park money between trades, to send dollars across borders and to settle payments. That has made them a priority for regulators, and in the last two years the rules have changed a lot.

How stablecoins keep their value

There are a few designs, with very different risks:

• Fiat-backed (reserve-backed): the issuer holds reserves, such as cash, bank deposits or short-dated government debt, equal to the coins in circulation, and promises to redeem each coin for one dollar (or one euro, and so on). This is by far the most common type, and the one new laws focus on.
• Crypto-backed: the coin is backed by other crypto held in smart contracts, usually over-collateralised (more than $1 of crypto per $1 of stablecoin) because the collateral itself is volatile.
• Algorithmic: the coin tries to hold its value through code that expands or shrinks the supply, without full reserves. This design has a history of failures.

Why the price usually stays close to $1

For reserve-backed coins, redemption is the anchor. If the coin trades at $0.99, traders who can redeem with the issuer buy it cheaply and redeem it for $1, pushing the price back up. If it trades at $1.01, they create new coins for $1 and sell them. That only works if people trust that the reserves are really there and that redemption works when it matters.

What can go wrong

• Losing the peg (de-pegging): if people doubt the reserves, or a reserve asset becomes hard to access, the coin can trade below $1, sometimes far below.
• Reserve quality: reserves made of risky or illiquid assets may not cover redemptions in a run.
• Redemption limits: often only certain customers can redeem directly with the issuer, with minimum amounts. Everyone else sells on the market, at whatever price it offers.
• Platform risk: if you hold a stablecoin on an exchange, you also carry the risk of that exchange.
• Freezing: some issuers can freeze specific tokens, for example to comply with law enforcement orders.

Canadian regulators put it bluntly: holding a stablecoin on a crypto platform doesn’t offer the protections of a regulated deposit, and investors risk losing their whole investment, or having to sell at a loss instead of redeeming 1:1 with the issuer.

United States: the GENIUS Act

On 18 July 2025, the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) became law, creating a regime for payment stablecoins: digital assets issued for payment or settlement and redeemable at a fixed amount, such as $1. According to the Congressional Research Service’s summary:

• Approval: US payment stablecoin issuers must be approved by a state or federal regulator. Issuers can be subsidiaries of banks and credit unions, or nonbanks. Nonbanks with under $10 billion outstanding can opt for a state regime if it’s “substantially similar” to the federal one.
• Reserves: issuers must hold at least $1 of permitted reserves for every $1 of stablecoins. Permitted reserves are limited to coins and currency, insured bank and credit union deposits, short-dated Treasury bills, Treasury-backed repos and reverse repos, government money market funds, central bank reserves and similar government-issued assets approved by regulators.
• Transparency: issuers must publish their redemption procedures and periodic reports of outstanding coins and reserve composition, certified by executives and examined by registered accounting firms. Issuers above $50 billion must also publish audited annual financial statements.
• No interest: issuers can’t pay interest to holders. The CRS notes that the law doesn’t stop exchanges paying interest to their customers.
• Bankruptcy priority: stablecoin holders have priority over all other claims against the issuer.
• Status: payment stablecoins are not securities or commodities and are not federally insured.

Separately, SIPC says its broker protection does not cover stablecoins.

United Kingdom: part of the new FCA regime

Under the UK’s new cryptoasset regime, stablecoin issuers are among the firms that need FCA authorization. Firms could apply from 30 September 2026, and the regime comes into force on 25 October 2027. Until then, crypto businesses serving UK customers must be registered with the FCA for anti-money-laundering purposes, which doesn’t bring FSCS protection.

Canada: conditions for crypto platforms

The Canadian Securities Administrators call stablecoins value-referenced crypto assets (VRCAs). Under CSA Staff Notice 21-333, registered crypto platforms, and those operating under a pre-registration undertaking, can only offer VRCAs that meet the conditions in their registration decisions or undertakings, essentially certain coins backed by a single fiat currency. Since 31 December 2024, other stablecoins can’t be offered to Canadian clients on those platforms.

The CSA adds an important warning: even if a stablecoin meets those conditions, that doesn’t mean the CSA approves or endorses it or vouches for its safety.

Stablecoins and tax

Stablecoins are crypto for tax purposes in all three countries. Swapping bitcoin for a stablecoin is a disposal of the bitcoin, just like selling it. Because a stablecoin is meant to stay at $1, gains or losses on the stablecoin itself are usually tiny, but the swap into it can produce a large taxable gain on what you sold. See our guides for the US, the UK and Canada.

If you use stablecoins

1. Know which coin you hold and who issues it. Read the issuer’s reserve reports.
2. Prefer coins from regulated issuers, and platforms that are registered where you live.
3. Don’t treat a stablecoin as a bank account. There’s no deposit insurance, and “yield” offered on stablecoins comes from somewhere, usually lending, with its own risks.
4. Watch the price. A coin trading persistently below $1 is a warning sign.
5. Be careful with networks. The same stablecoin can exist on several blockchains. Sending it on the wrong network can mean losing it.