What are Stablecoins? A Business Guide

If your understanding of stablecoins comes primarily from crypto media, you've probably encountered language about DeFi protocols, yield farming, and algorithmic pegs. The conversation happening in boardrooms, treasury departments, and compliance offices right now is about something else entirely.

That conversation is about something more mundane and more consequential: whether stablecoins can serve as practical settlement infrastructure for business payments, particularly across borders. The answer is increasingly yes, with important caveats that any responsible finance professional should understand before getting involved.

This guide is written for CFOs, treasury teams, and compliance officers. It explains what stablecoins are, how they work, what risks they carry, and why the regulatory landscape has converged around a framework that treats them as payment instruments rather than speculative assets.

What Stablecoins Actually Are

A stablecoin is a digital asset designed to maintain a stable value relative to a reference asset, most commonly the U.S. dollar. The operative word is "designed to." A stablecoin is not a dollar. It is not FDIC-insured. It is not issued by a central bank. It is a privately issued digital token that aims to trade at or very near $1.00, backed by a reserve of assets held by the issuer.

Think of it as a digital representation of dollar value that can move on blockchain networks: 24 hours a day, seven days a week, with settlement typically completing in minutes rather than business days. That speed and availability, combined with the programmability that blockchain networks enable, are what make stablecoins interesting as payment infrastructure.

The two largest stablecoins by market capitalization are USDT (issued by Tether) and USDC (issued by Circle). Together they represent approximately 83% of the stablecoin market, which surpassed $317 billion in total market capitalization as of early 2026. Notably, while USDT leads in market cap ($187 billion to USDC's $76 billion), USDC recently surpassed USDT in total transaction volume for the first time in nearly a decade, signaling institutional preference for more heavily regulated options.

How Stablecoins Maintain Their Value: Reserve Models

Not all stablecoins are created equal. How a stablecoin maintains its peg, and what backs it, determines its risk profile. There are three primary models.

Fiat-Backed (Fully Reserved)

The issuer holds reserves of fiat currency and cash equivalents (typically U.S. Treasury bills, bank deposits, and money market instruments) equal to or exceeding the total stablecoins in circulation. When you buy 1 USDC from Circle, Circle holds $1 worth of reserves. When you redeem, they return the dollar and burn the token.

This is the model used by USDC and USDT, and the one regulators globally have coalesced around as the standard for payment stablecoins. However, for a compliance or treasury team evaluating which stablecoins to work with, treating USDC and USDT as equivalent would be a mistake; their regulatory profiles differ significantly.

USDC is issued by Circle, a US-headquartered company. Reserves are held exclusively in cash and short-duration U.S. Treasuries, custodied by BNY Mellon and managed in part through a BlackRock money market fund. Monthly reserve attestations are published and reviewed by Deloitte. Circle received an Electronic Money Institution license from France's ACPR in July 2024, making USDC compliant for EU issuance under MiCA. USDC is on a straightforward compliance path under the newly enacted U.S. GENIUS Act.

USDT is issued by Tether, incorporated in the British Virgin Islands. As of Q3 2025, approximately 78% of USDT's reserves are held in U.S. Treasuries, a significant improvement from earlier years when reserves included substantial commercial paper and other less liquid assets. The remainder includes gold (~7%), bitcoin (~6%), secured loans (~8%), and other investments. Quarterly attestations are published by BDO, a top-five global accounting firm. Tether settled with the CFTC in 2021 for $41 million and with the New York Attorney General in 2021 for $18.5 million for misrepresenting its reserves during an earlier period. Tether has meaningfully improved its reserve quality and disclosure practices since then, but its path to compliance under the U.S. GENIUS Act, which requires licensed U.S. issuers, remains unresolved.

The strength of any fiat-backed stablecoin comes down to reserve quality: whether the backing is liquid, high-quality, and accessible during a stress event. For businesses evaluating stablecoin exposure, understanding which stablecoin their provider uses and why is a reasonable due diligence question.

Crypto-Collateralized

Some stablecoins are backed by other crypto assets rather than fiat. These typically require over-collateralization to absorb price volatility (for example, posting more than $1 in crypto collateral to mint $1 of stablecoin). The most well-known example has historically been DAI, originally issued through the MakerDAO protocol. It's worth noting that MakerDAO rebranded as Sky Protocol in August 2024, launched a successor stablecoin called USDS, and DAI's collateral base has shifted substantially toward real-world assets (tokenized Treasuries, USDC) rather than purely crypto collateral. This model remains more common in decentralized finance and less relevant to enterprise B2B payments, though it's worth understanding as part of the broader landscape.

Algorithmic (No Reserves)

Algorithmic stablecoins attempt to maintain their peg through software mechanisms (minting and burning supply in response to demand) without holding actual reserves. TerraUSD (UST) was the most prominent example. In May 2022, it collapsed, wiping out the combined LUNA and UST ecosystem, valued at over $40 billion at its peak, in a matter of days. UST itself had a market cap of approximately $17.5 billion; LUNA made up the remainder. The collapse demonstrated that algorithmic models carry fundamental fragility: when confidence breaks, there is no reserve to fall back on.

For business applications, fiat-backed stablecoins from regulated issuers are the relevant category. The rest of this guide focuses on them.

Why Businesses Are Paying Attention

Specific pain points in existing payment infrastructure are driving business interest in stablecoins.

Speed

Traditional cross-border payments typically take two to five business days because they route through chains of correspondent banks, each operating on their own schedule with their own compliance processes. Stablecoin transfers on blockchain networks can settle in minutes and operate around the clock, including weekends and holidays.

Cost

The all-in cost of traditional cross-border payments, including explicit wire fees, correspondent bank charges, and FX spread markups at each conversion point, averages over 6% of transaction value for B2B cross-border payments according to World Bank data, with specific corridors running higher. The wire fee itself is often the smallest component; the real cost is buried in FX markups and the cumulative charges taken by each intermediary in a correspondent chain. Stablecoin-based settlement models can significantly reduce these costs by compressing the intermediary chain, though exact savings depend on the specific corridor and provider.

Transparency

Blockchain transactions are recorded on a public or permissioned ledger with a clear audit trail. You can see when a transfer was initiated, when it settled, and where value moved, without waiting for manual confirmation from each intermediary in a correspondent chain.

Capital Efficiency

Correspondent banking requires pre-funding accounts (nostro accounts) in multiple currencies across multiple jurisdictions. This traps significant working capital. Stablecoin settlement models can reduce or eliminate pre-funding requirements by enabling on-demand conversion and near-immediate settlement.

These benefits are already showing up at production scale. Stablecoin transaction volume has been growing consistently, with major payment companies, financial institutions, and enterprise treasury teams integrating stablecoin settlement into their operations. The market is moving from pilot programs to production-scale volume.

The Risks: What Every Business Should Know

Any serious evaluation of stablecoins for business use requires honest accounting of the risks involved. These are real, and some of them materialized in ways that cost real money.

Reserve Risk

Is the backing actually there? Are the reserves liquid and high-quality, or are they parked in illiquid or risky assets? Reserve quality has been a persistent area of scrutiny, particularly for Tether, which faced regulatory action in earlier years over reserve misrepresentation before shifting substantially to U.S. Treasuries. Regulated issuers now publish regular attestations reviewed by independent accounting firms, but attestations are point-in-time snapshots, not continuous audits. The distinction matters: an attestation confirms a reserve position at a specific moment; it does not provide real-time assurance.

Depeg and Redemption Risk

Even well-backed stablecoins can temporarily trade below $1.00 during confidence shocks. In March 2023, USDC briefly traded as low as $0.87 on secondary markets after Silicon Valley Bank failed. At the time, Circle held approximately $3.3 billion of USDC's roughly $40 billion in total reserves at SVB, roughly 8% of backing. USDC was fully backed throughout the episode; the depeg reflected market uncertainty about whether that portion of reserves would be accessible, not an actual shortfall. The situation resolved within roughly 72 hours when the Federal Reserve guaranteed depositor access. The episode demonstrated that "fully backed" and "instantly redeemable at par during a crisis" are different things in practice, and that reserve diversification across custodians is meaningful risk mitigation, not just a compliance checkbox.

Regulatory Risk

The regulatory framework for stablecoins, while rapidly maturing, still carries transition risk. An issuer that's compliant today may face new requirements as implementing regulations are finalized. Regulators can restrict stablecoin activities, require specific licensing, or limit which stablecoins can be used in certain jurisdictions. In February 2023, the New York Department of Financial Services ordered Paxos to stop minting BUSD; its market capitalization fell more than 80% over the following months. Regulatory risk is tangible and immediate; it directly affects the availability and usability of specific stablecoins.

Operational Risk

Smart contract vulnerabilities, blockchain network congestion, bridge exploits, and key management failures are all real operational risks. The Ronin Bridge exploit ($625 million, 2022) and the Wormhole exploit ($325 million, 2022) demonstrated that infrastructure connecting blockchain networks can be attacked. Operational risk in stablecoin systems is different in character from operational risk in traditional banking and requires different expertise to manage. For enterprise B2B payments using major, direct-settlement blockchains rather than bridged assets, many of these risks are reduced but not eliminated.

Counterparty Risk

Stablecoin reserves are typically held at banks. If a reserve bank fails (as SVB did), the stablecoin issuer's ability to honor redemptions may be temporarily or permanently impaired. Issuers mitigate this by diversifying reserve custody across multiple institutions and investing primarily in short-duration U.S. Treasury bills, but the risk exists and should be part of any assessment.

Tax and Accounting Risk

This risk category is absent from most stablecoin guides but directly relevant to CFOs. Under current IRS guidance, stablecoins are classified as property, not currency. Disposing of a stablecoin (including using it to settle a payment) is technically a taxable event if the stablecoin was acquired at a different value than when it was used or sold. For most B2B use cases routed through an on/off ramp model, where your company deposits fiat, a licensed provider handles the stablecoin layer, and the beneficiary receives fiat, this is likely a non-issue because you never hold the stablecoin directly. But for any company holding stablecoins on-balance-sheet, the tax treatment requires careful structuring. Starting with 2025 transactions, brokers are also required to issue Form 1099-DA reporting stablecoin disposals above certain thresholds.

On the accounting side, FASB's ASU 2023-08 (effective for fiscal years beginning after December 15, 2024) requires fair value accounting for certain crypto assets. Many stablecoins may fall outside the standard's scope if they qualify as financial instruments, but that determination is company-specific and requires analysis. CFOs holding stablecoins on the balance sheet should work with their auditors to confirm the applicable accounting treatment before a filing requires it.

These are factors to evaluate and manage, just as businesses evaluate counterparty risk, FX risk, and operational risk in traditional payment systems. Stablecoins introduce different risks, and managing them requires understanding what they are.

The Regulatory Landscape: Global Convergence

Perhaps the most significant development in the stablecoin space is the convergence of regulatory frameworks around the world toward treating stablecoins as regulated payment instruments.

MiCA (Markets in Crypto-Assets Regulation, European Union)

MiCA's stablecoin provisions became effective June 30, 2024, with the full regulation applying from December 30, 2024. For stablecoins (classified as "e-money tokens" under MiCA), it requires one-to-one backing in high-quality liquid assets, transparency on reserve composition, and licensing for issuers operating within the European Economic Area. Circle received an EMI license from France's ACPR in July 2024, making USDC and EURC the first stablecoins compliant for EU issuance under MiCA. USDT was subsequently delisted from several EU exchanges, including Coinbase Europe, Bitstamp, Crypto.com, and Binance, as Tether has not obtained the required EU issuer authorization.

GENIUS Act (United States)

The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act was signed into law by President Trump on July 18, 2025, following passage in the Senate (68–30) and the House (308–122). It is the first federal stablecoin law in U.S. history. Key provisions: permitted payment stablecoin issuers must maintain 1:1 reserves in specified high-quality assets (U.S. dollars, short-term Treasuries, government money market funds, and similar instruments); issuers must publish monthly public disclosures of reserve composition; issuers must maintain the technical capability to freeze, burn, or seize stablecoins on lawful order; issuers must be either a bank subsidiary supervised by their primary regulator, an OCC-licensed nonbank, or a state-licensed issuer (for issuers with under $10 billion in outstanding stablecoins, provided the state framework is substantially equivalent to federal requirements); and in the event of issuer insolvency, stablecoin holders receive first-priority claims over other creditors. The Act's effective date is the earlier of 18 months from enactment (approximately November 2026) or 120 days after regulators finalize implementing rules.

CBUAE (Central Bank of the UAE)

In June 2024, the Central Bank of the UAE issued Circular No. 2/2024 introducing the Payment Token Services Regulation (PTSR), which became effective July 2024 with a one-year transitional period. The PTSR establishes a structured licensing and registration framework for both UAE-dirham stablecoins (which require a full license) and foreign payment tokens (which require registration as a "Registered Foreign Payment Token Issuer" with the CBUAE). VARA (Virtual Assets Regulatory Authority) in Dubai and the ADGM in Abu Dhabi provide additional licensing frameworks for virtual asset service providers operating in those jurisdictions.

MAS (Monetary Authority of Singapore)

Singapore finalized its stablecoin regulatory framework in August 2023 under the Payment Services Act, with specific provisions including reserve requirements, capital requirements, and disclosure obligations for stablecoin issuers seeking MAS recognition. Requirements include 100% reserve backing in low-risk, highly liquid assets and redemption at par value within five business days. Only stablecoins meeting all requirements can carry the "MAS-regulated stablecoin" label.

How Stablecoins Fit Into B2B Payments

In the context of B2B cross-border payments, stablecoins typically serve as a settlement layer rather than a customer-facing product. The most common architecture works like this: the sender deposits fiat currency, which is converted to a stablecoin by a licensed on-ramp provider, transferred across a blockchain network, converted back to local fiat currency by a licensed off-ramp provider, and delivered to the beneficiary.

The sender and beneficiary interact only with fiat. They don't need crypto wallets, blockchain knowledge, or any understanding of the underlying settlement mechanism. The stablecoin layer is infrastructure, analogous to how SWIFT is a messaging layer that most end users never interact with directly.

This model works because it preserves the compliance infrastructure that regulated businesses require. Know Your Customer (KYC) verification happens at the on-ramp and off-ramp. Sanctions screening happens before any value moves. Transaction monitoring and suspicious activity reporting continue to apply, and for on-chain activity, blockchain analytics providers such as Chainalysis, Elliptic, and TRM Labs provide the transaction monitoring layer that compliance teams expect. It's also worth noting that OFAC sanctions extend to blockchain addresses, not just entities; the 2022 Tornado Cash designation confirmed that on-chain activity is within OFAC's enforcement perimeter. Reputable stablecoin payment providers screen against sanctioned addresses as part of their standard compliance stack. The settlement mechanism changes; the compliance obligations do not.

It's also worth noting that USD stablecoins are not the only option. EUR-denominated stablecoins (including Circle's EURC), GBP, and other currency stablecoins are available and increasingly relevant for European and multi-currency corridors where converting to USD and back would introduce unnecessary FX exposure.

Where This Is Heading

Stablecoins are an infrastructure evolution in how value moves between institutions and across borders. The market is maturing rapidly: the U.S. now has its first federal stablecoin law on the books, institutional adoption is accelerating, and the technology is being integrated into existing financial workflows alongside traditional rails.

For business leaders evaluating this space, the practical questions are: Which stablecoins are issued by regulated entities in the jurisdictions you care about, and what does their compliance path look like under the GENIUS Act? What does the reserve composition actually look like, and how is it attested? Does your payment provider's compliance infrastructure (KYC, sanctions screening, on-chain transaction monitoring) meet your regulatory obligations? And do the speed and cost benefits justify the operational change for your specific use case?

The businesses getting this right are the ones asking those questions now, before their competitors' treasury teams start capturing the efficiency gains.