Top Types of Stablecoins You Need to Know in 2025

With global investors cheering Bitcoin’s momentous journey past the key $100,000 mark, stablecoins have seen their market cap surge past $200 billion as markets get ready for the crypto bull run. As of writing, Coinmarket cap lists nearly 200 stablecoins on its platform with a combined market cap exceeding $212 billion. 

 

Stablecoins’ transaction volume | Source: Chainalysis

 

Next to Bitcoin and Ethereum, this sector is probably one of the most popular and well-known. Here’s a deep dive into the world of stablecoins and a look at some of the most promising stablecoins to add to your portfolio. 

 

Stablecoins are cryptocurrencies designed to maintain a stable value by pegging their worth to external assets like fiat currencies, commodities, or other financial instruments. At their core, stablecoins aim to offer the best of both worlds: the efficiency, transparency, and security of blockchain technology minus the wild price swings typical of cryptocurrencies like Bitcoin. They achieve this balance by tethering their value to more stable assets, ensuring that for every stablecoin issued, there is a corresponding asset in reserve, be it a US dollar, Euro, or even gold. This mechanism provides a safe harbor for investors and users seeking stability in the digital asset market.

 

In the volatile cryptocurrency market, stablecoins offer reliability. They provide a safe haven for investors during market swings and facilitate everyday transactions without the risk of significant value fluctuations. 

 

Stablecoins vs. Bitcoin in terms of transaction activity by region | Source: Chainalysis

 

How Do Stablecoins Work? 

The stability of these coins is not by chance but by design, with each stablecoin employing one of several methods to maintain its peg. The most common approach involves holding reserves of the asset to which the stablecoin is pegged, providing a direct correlation in value. 

 

Alternatively, algorithmic stablecoins regulate their supply based on market dynamics, expanding or contracting issuance according to demand, thereby stabilizing value through smart contract protocols.

 

Stablecoins serve multiple essential functions in the cryptocurrency ecosystem, providing stability and efficiency in various use cases. Here’s how you can use stablecoins:

 

1. Facilitating Trading

Stablecoins act as a stable medium of exchange on crypto exchanges and in derivatives trading. They allow you to move in and out of volatile cryptocurrencies without converting to fiat. This helps you avoid market swings and enables seamless trading. For example, Tether (USDT) and USD Coin (USDC) are widely used for this purpose.

 

2. Cross-Border Remittances

Stablecoins offer a low-cost, fast alternative to traditional remittance services. You can send money internationally with minimal fees and avoid delays caused by banking intermediaries. This is particularly useful in regions where banking infrastructure is limited or unreliable. Many migrant workers use stablecoins like USDT to send funds to their families.

 

3. Decentralized Finance (DeFi)

In DeFi platforms, stablecoins play a key role as collateral for loans, liquidity pools, and yield farming. Their stability helps mitigate risk when participating in DeFi services. Popular stablecoins like DAI and sUSD are commonly used in lending and borrowing protocols.

 

4. Financial Services for the Unbanked

Stablecoins provide access to financial services for people without traditional banking. If you live in a region with an unstable currency or limited banking options, stablecoins let you save, spend, and transfer funds digitally. All you need is a smartphone and an internet connection.

 

5. Store of Value

Stablecoins help you preserve value during market volatility. When crypto prices swing, you can convert your assets into stablecoins to protect against losses. This makes them a reliable safe haven in the crypto market.

 

By bridging the gap between traditional finance and digital assets, stablecoins enhance the adoption of cryptocurrencies and empower users with new financial opportunities.

 

Stablecoins are digital assets designed to maintain a stable value by pegging to external references. They achieve this stability through various mechanisms, leading to four main categories:

 

Fiat-Collateralized Stablecoins

Fiat-collateralized stablecoins maintain a 1:1 peg with a specific fiat currency by holding equivalent reserves. When you purchase such a stablecoin, the issuer holds an equivalent amount of fiat currency in reserve. This reserve ensures that you can redeem the stablecoin for its fiat equivalent at any time.

 

Fiat-collateralized stablecoins come with several associated risks. Counterparty risk arises because you rely on the issuer to maintain adequate reserves and operate transparently. If the issuer fails to hold enough reserves, the stablecoin may lose its peg, undermining its stability. Additionally, regulatory concerns can affect the operation and acceptance of these stablecoins. Increased scrutiny over reserve audits or new regulations may erode trust and limit usage, impacting the overall reliability of the stablecoin.

 

Examples:

• Tether (USDT): One of the earliest and most widely used stablecoins, pegged to the U.S. dollar.

• USD Coin (USDC): A U.S. dollar-backed stablecoin issued by Circle and Coinbase.

• TrueUSD (TUSD): A fully collateralized U.S. dollar stablecoin with regular attestations.

Commodity-Collateralized Stablecoins

These stablecoins are backed by physical assets like gold or oil. Each token represents a specific quantity of the commodity, providing a digital means to hold and transfer commodity value.

 

Commodity-collateralized stablecoins offer unique benefits and risks. Tangible asset backing allows you to gain exposure to physical commodities, such as gold, without dealing with the challenges of storage or transport. However, there are potential risks to consider. Liquidity concerns can arise when converting these stablecoins back into physical commodities, which may involve complex processes and additional fees. Additionally, market volatility can impact the stablecoin’s value, as it fluctuates with changes in the market price of the underlying commodity.

 

Examples:

• PAX Gold (PAXG): Each token represents one fine troy ounce of gold held in custody.

• Tether Gold (XAUT): A digital asset backed by physical gold reserves.

Crypto-Collateralized Stablecoins

These stablecoins are secured by other cryptocurrencies, often requiring over-collateralization to account for crypto market volatility. For example, to issue $100 worth of a stablecoin, you might need to lock $150 worth of cryptocurrency in a smart contract.

 

Crypto-collateralized stablecoins come with several complexities and risks. Over-collateralization requires you to lock up more value than the stablecoin issued, making it capital-inefficient. These stablecoins also depend on smart contract security; any bugs or exploits in the code can lead to significant loss of funds. Additionally, the volatility of the collateral poses a risk — sharp declines in the collateral's value can trigger liquidations, potentially destabilizing the stablecoin and causing it to lose its peg.

 

Examples:

• Dai (DAI): A decentralized stablecoin pegged to the U.S. dollar, collateralized by various cryptocurrencies.

• sUSD (Synthetix USD): A stablecoin backed by the Synthetix Network Token (SNX).

Algorithmic Stablecoins

Algorithmic stablecoins use algorithms and smart contracts to control their supply, aiming to maintain a stable price without direct collateral backing. The system expands or contracts the token supply based on market demand to keep the price stable.

 

Algorithmic stablecoins face significant challenges and notable failures. Stability issues arise because maintaining a peg without collateral relies solely on algorithms, making them vulnerable to price volatility. One of the most well-known failures is TerraUSD (UST), which collapsed in 2022. UST lost its peg due to flaws in its stabilization mechanism, causing a dramatic decline in value and leading to significant investor losses. This incident highlighted the inherent risks and fragility of algorithmic stablecoins.

 

Examples:

• Ampleforth (AMPL): Adjusts its supply daily based on price deviations from a target value.

• Frax (FRAX): A partially algorithmic stablecoin with fractional collateral backing.

Here are some of the most popular stablecoins in the crypto market, based on their market cap, level of adoption, technology, and use cases: 

 

 

Tether (USDT) is a fiat-collateralized stablecoin introduced by Tether Limited Inc. in 2014. It maintains a 1:1 peg with the U.S. dollar, meaning each USDT token is designed to be equivalent to one U.S. dollar. This stability is achieved by backing each USDT with corresponding reserves held by Tether, including cash and cash equivalents. The primary function of USDT is to provide cryptocurrency users with a stable asset, mitigating the volatility commonly associated with digital currencies.

 

USDT dominance vs. BTC price | Source: Glassnode

 

As of 2024, Tether's USDT has reached significant milestones in adoption and usage, with its market cap exceeding $140 billion at the time of writing. The stablecoin is held in over 109 million on-chain wallets, reflecting a substantial increase in both individual and institutional adoption. This widespread use underscores USDT's role as a reliable store of value and medium for cross-border transactions. Additionally, Tether reported a profit of $7.7 billion year-to-date by the end of Q3 2024, indicating strong financial performance. USDT's integration across multiple blockchain platforms enhances its liquidity and accessibility, making it a preferred choice for traders and investors seeking stability in the volatile cryptocurrency market.

USD Coin (USDC)

 

USD Coin (USDC) is a fiat-collateralized stablecoin introduced in October 2018 by Circle, in collaboration with Coinbase, under the Centre Consortium. Each USDC token is backed 1:1 by U.S. dollar reserves, ensuring its value remains stable and equivalent to one U.S. dollar. These reserves are held in regulated financial institutions and are regularly audited to maintain transparency and trust.

 

As of December 2024, USDC has a circulating supply of over 42 billion tokens, positioning it as the second-largest stablecoin by market capitalization, approximately $42 billion. USDC is widely used across various blockchain platforms, facilitating seamless trading, acting as a stable medium of exchange, and serving as collateral in decentralized finance (DeFi) applications. Its emphasis on regulatory compliance and transparency has made it a preferred choice among institutional investors and businesses seeking stability in the cryptocurrency market. 

 

Learn more about the differences between USDT and USDC.

Ripple USD (RLUSD)

 

Ripple USD (RLUSD) is a fiat-collateralized stablecoin introduced by Ripple on December 17, 2024. Each RLUSD token is fully backed by U.S. dollar deposits, government bonds, and cash equivalents, ensuring a 1:1 peg with the U.S. dollar. This backing provides stability and reliability, making RLUSD a secure medium of exchange within the cryptocurrency ecosystem. Operating on both the XRP Ledger and Ethereum blockchain, RLUSD offers flexibility and broad compatibility for various financial applications. In less than a week since its launch, as of writing, RLUSD has a market cap of over $53 million. 

 

Upon its launch, RLUSD became available on global exchanges such as Uphold, Bitso, MoonPay, Archax, and CoinMENA, with plans for further expansion. Ripple emphasizes transparency by committing to monthly, third-party attestations of RLUSD's reserve assets, conducted by an independent auditing firm. The stablecoin is designed to facilitate instant settlement of cross-border payments, provide liquidity for remittance and treasury operations, and seamlessly integrate with decentralized finance (DeFi) protocols. Additionally, RLUSD serves as reliable collateral for trading tokenized real-world assets on-chain, enhancing its utility in the digital finance landscape.

 

Learn more about the RLUSD stablecoin. 

 

Ethena USDe (USDe)

 

Ethena's USDe is a synthetic, yield-generating stablecoin pegged to the U.S. dollar. Launched in February 2024 by Ethena Labs, it uses a delta-neutral strategy that combines staked Ethereum (ETH) positions with short ETH positions on centralized exchanges to maintain its peg and generate returns. This approach allows USDe to offer attractive annual percentage yields (APY) to its holders. Since its inception, USDe has quickly gained traction, reaching a market capitalization of approximately $6 billion within 10 months, making it the third-largest stablecoin by market cap.

 

How Ethena’s USDe works | Source: Ethena docs

 

In December 2024, Ethena announced the launch of USDtb, a new stablecoin backed by BlackRock and Securitize’s tokenized money market fund, BUIDL. This initiative aims to help stabilize USDe’s yield during bearish crypto markets by diversifying its collateral base. USDtb holds 90% of its reserves in BUIDL and is designed to maintain a $1 peg. Ethena also plans to use USDtb as collateral on centralized exchanges and secure an allocation in Sky’s $1 billion tokenized asset investment plan. These developments have fueled interest in Ethena’s ecosystem, with the governance token ENA rallying following investment from Donald Trump-affiliated World Liberty Financial.

Dai (DAI)

 

Dai (DAI) is a decentralized, crypto-collateralized stablecoin developed by MakerDAO, an Ethereum-based protocol. Launched on December 18, 2017, DAI maintains a 1:1 peg to the U.S. dollar through an over-collateralization mechanism. Users generate DAI by depositing Ethereum-based assets into MakerDAO's smart contracts, creating a collateralized debt position (CDP). This system ensures that each DAI is backed by a surplus of collateral, maintaining its stability even during market volatility.

 

As of December 2024, DAI's circulating supply is approximately $5.3 billion, ranking it as the fourth-largest stablecoin after USDT and USDC. DAI's decentralized nature and transparency have made it a cornerstone in the decentralized finance (DeFi) ecosystem. It is widely used for lending, borrowing, and as a medium of exchange in various DeFi platforms. Additionally, DAI facilitates financial inclusion by providing a stable digital currency accessible to individuals without traditional banking services.

 

First Digital USD (FDUSD)

 

First Digital USD (FDUSD) is a reserve-backed stablecoin introduced in June 2023 by FD121 Limited, a subsidiary of Hong Kong-based First Digital Limited. Designed to maintain a 1:1 peg with the U.S. dollar, FDUSD is fully backed by cash and cash equivalents held in segregated accounts managed by First Digital Trust Limited, ensuring transparency and security. Initially launched on the Ethereum and BNB Chain networks, FDUSD has expanded its presence to other blockchains, including Sui, enhancing its interoperability within the decentralized finance (DeFi) ecosystem.

 

Since its launch, FDUSD has experienced significant growth, achieving a market capitalization of $1 billion within six months. By December 2024, it became the fifth-largest stablecoin, with a market cap reaching $1.3 billion. This rapid adoption is attributed to its transparent reserve management and strategic partnerships, notably with platforms like Binance, which has promoted FDUSD following the discontinuation of its native stablecoin, BUSD. FDUSD's programmability allows for diverse applications, including cross-border transactions, DeFi services, and digital payments, making it a versatile tool in the crypto market. 

 

PayPal USD (PYUSD)

 

PayPal USD (PYUSD) is a U.S. dollar-denominated stablecoin introduced by PayPal in August 2023. It is fully backed by U.S. dollar deposits, short-term U.S. Treasuries, and similar cash equivalents, ensuring a 1:1 redemption for U.S. dollars. Issued as an ERC-20 token on the Ethereum blockchain, PYUSD facilitates seamless transfers between PayPal and compatible external wallets, person-to-person payments, and conversions between supported cryptocurrencies.

 

Despite PayPal's extensive user base, PYUSD's adoption has been modest. As of December 2024, PYUSD ranked as the eighth most popular stablecoin, with a market capitalization of approximately $494 million, significantly trailing leaders like Tether (USDT) and USD Coin (USDC).

 

In May 2024, PayPal expanded PYUSD's functionality by making it available on the Solana blockchain, aiming to enhance transaction speed and reduce costs. Additionally, in September 2024, PayPal enabled U.S. merchants to buy, hold, and sell cryptocurrencies, including PYUSD, from their business accounts, further integrating digital currencies into its platform. 

 

Learn all about PayPal USD (PYUSD) stablecoin here. 

Usual USD (USD0)

How USD0 works | Source: Usual docs

 

Usual USD (USD0) is a permissionless stablecoin introduced by the Usual Protocol in early 2024. It is fully backed 1:1 by Real-World Assets (RWAs), primarily ultra-short maturity U.S. Treasury Bills, ensuring stability and security. USD0 operates independently of traditional banking systems, offering seamless integration within the decentralized finance (DeFi) ecosystem. As of December 2024, USD0 has achieved a market capitalization of over $1.2illion, with a 24-hour trading volume around $204 million.

 

Its transparent backing by RWAs and integration into DeFi platforms make it a reliable option for users seeking stability in volatile markets. Additionally, the Usual Protocol's governance token, $USUAL, allows community members to participate in decision-making processes, fostering a decentralized and user-driven ecosystem. 

 

Learn more about how Usual Protocol works. 

 

Frax (FRAX)

 

Frax (FRAX) is a decentralized, dollar-pegged stablecoin introduced by Frax Finance in December 2020. It pioneered the fractional-algorithmic model, combining algorithmic mechanisms with partial collateral backing to maintain its 1:1 peg to the U.S. dollar. Initially, FRAX operated with a mix of algorithmic stabilization and collateralization but has since transitioned towards full collateral backing. In February 2023, the Frax community approved the "v3" upgrade, aiming for 100% collateralization to enhance stability and resilience.

 

As of December 2023, FRAX holds a market capitalization of approximately $645 million, reflecting its significant role in the stablecoin market. Its integration into various decentralized finance (DeFi) platforms allows users to engage in activities such as lending, borrowing, and liquidity provision. A standout feature of FRAX is its innovative approach to stability, initially blending algorithmic and collateral mechanisms, and now moving towards complete collateralization. This evolution underscores Frax Finance's commitment to adapting and enhancing its protocol in response to market demands and the need for robust stability in the volatile crypto ecosystem. 

 

Ondo US Dollar Yield (USDY)

 

Ondo US Dollar Yield (USDY) is a yield-bearing stablecoin introduced by Ondo Finance in early 2024. It is backed by short-term U.S. Treasuries and bank demand deposits, aiming to provide investors with a stable asset that offers returns. USDY is accessible to non-U.S. individual and institutional investors, with on-chain transferability becoming available 40 to 50 days after purchase.

 

USDY’s value increasing over time | Source: Ondo Finance

 

As of December 2024, USDY holds a market capitalization of approximately $448 million, with a trading price around $1.07. It is available on multiple blockchain networks, including Ethereum and Aptos, enhancing its accessibility within the decentralized finance DeFi ecosystem. USDY's integration into various DeFi platforms allows users to engage in activities such as lending, borrowing, and liquidity provision, making it a versatile tool for earning yield in the crypto market. 

 

Before you trade stablecoins, there are some risks that you should be aware of:

 

• Regulatory Scrutiny: Stablecoins operate in a rapidly evolving legal environment. Regulatory bodies are increasingly focusing on these digital assets, raising concerns about their potential impact on financial stability. For instance, the Financial Stability Oversight Council (FSOC) has highlighted the need for comprehensive federal oversight to mitigate associated risks.

• Technological Vulnerabilities: Stablecoins rely on complex technological infrastructures, including smart contracts and blockchain networks. These systems are susceptible to technical failures, hacks, and exploits, which can lead to significant financial losses. The FSOC has noted that the lack of standardized risk management practices in stablecoin operations exacerbates these vulnerabilities.

• Market Risks: Stablecoins aim to maintain a fixed value, but they are not immune to market dynamics. Events such as de-pegging, where a stablecoin loses its intended value, can occur due to factors like insufficient reserves or market manipulation. The FSOC has warned that the rapid growth and concentration in the stablecoin market could pose systemic risks to the broader financial system.

Stablecoins have become integral to the cryptocurrency ecosystem, offering a bridge between volatile digital assets and traditional financial systems. Each type presents unique benefits and challenges. Fiat-collateralized stablecoins offer stability but may face regulatory scrutiny. Commodity-backed options provide tangible asset backing yet can encounter liquidity issues. Crypto-collateralized variants promote decentralization but require over-collateralization. Algorithmic stablecoins are innovative but have experienced notable failures, such as the collapse of TerraUSD (UST) in 2022.

 

Recognizing these distinctions and associated risks is essential for navigating the crypto landscape effectively. Staying informed enables safer and more informed participation in the dynamic world of digital finance.

 

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1. What Was the First Stablecoin? 

Introduced in 2014, Tether (USDT) is widely considered the first stablecoin in the crypto market. It aims to maintain a 1:1 peg with the US dollar.

 

2. What Is the Best Stablecoin? 

Determining the "best" stablecoin depends on specific use cases and preferences. Some popular options include USDT, USDC, DAI, and USDD, each with unique features and mechanisms.

 

3. Are Stablecoins Regulated? 

Stablecoins are gaining regulatory attention due to their potential impact on the financial system. While no standardized regulations exist, jurisdictions like Singapore have finalized rules for stablecoins, focusing on reserve backing and transparency.

 

The Monetary Authority of Singapore (MAS), which serves as the country's central bank, completed the establishment of a regulatory structure for stablecoins in August 2023. This framework mandates that regulated issuers must maintain the requisite reserves at hand.

 

4. Can Stablecoins Crash? 

Stablecoins can risk crashing if they are not adequately backed, regulated, or managed. Instances like the collapse of algorithmic stablecoin UST have raised concerns about the stability of certain types of stablecoins.

 

5. Can Stablecoins Increase in Value? 

Stablecoins are designed to maintain a stable value, often pegged to a specific currency like the US dollar. While their primary goal is stability, market dynamics and external factors can impact their value, causing fluctuations.

 

6. Can You Store Stablecoins on Ledger? 

You can store stablecoins on hardware wallets like Ledger. It is a secure offline storage option for your stablecoin holdings. 

 

7. How to Earn Interest on Stablecoins 

You can earn interest on stablecoins by participating in lending, staking, or yield farming through decentralized finance (DeFi) platforms like Aave, Compound, or Curve. Centralized exchanges such as KuCoin also offer savings accounts or lending services with fixed or flexible interest rates on stablecoin deposits. Returns vary depending on the platform and market conditions, with typical yields ranging from 3% to 10% annually. Learn more about how to earn passive income with stablecoins here.