Stablecoin

A stablecoin is a crypto-asset that seeks to maintain a stable value by referencing one or more external assets. Unlike Bitcoin or Ether, whose values are determined entirely by market supply and demand, stablecoins are designed for use as a medium of exchange or store of value within digital asset ecosystems — performing the monetary functions that volatility makes impractical for general-purpose cryptocurrencies. The category encompasses instruments of vastly different risk profiles, from fully reserve-backed fiat-pegged tokens to algorithmic stablecoins with no tangible backing.

Types of Stablecoin

Fiat-backed stablecoins hold reserves of fiat currency (or short-term, liquid fiat-equivalent instruments such as government securities and bank deposits) in amounts at least equal to the outstanding token supply. Token holders have a redemption right against the issuer. Major examples include USD Coin (USDC) (issued by Circle, regulated under US money transmitter licences and subject to reserve attestation requirements) and Tether (USDT) (issued by Tether Ltd, the largest stablecoin by market capitalisation as of 2025 at approximately $140 billion). Reserve composition, audit frequency, and redemption rights differ materially between issuers — a compliance and credit risk distinction regulators have increasingly emphasised.

Commodity-backed stablecoins hold physical commodities — most commonly gold — as reserves. Examples include Paxos Gold (PAXG) and Tether Gold (XAUT). Reserve custody, auditing, and the legal characterisation of the token (as a commodity interest, a security, or a payment instrument) vary by jurisdiction.

Crypto-backed stablecoins over-collateralise with volatile crypto-assets. The MakerDAO DAI stablecoin is the canonical example: users lock ETH or other assets in a smart contract and mint DAI up to a collateral ratio. Liquidation mechanisms trigger automatic deleveraging if collateral values fall. These systems introduce smart contract risk and oracle dependency.

Algorithmic stablecoins seek to maintain peg through algorithmic expansion and contraction of supply, without direct asset backing. The collapse of TerraUSD (UST) in May 2022 — which lost its peg and triggered approximately $40 billion in value destruction within days — demonstrated the systemic risk of unbacked algorithmic stablecoins and accelerated regulatory action in multiple jurisdictions.

MiCA Classification: ART vs EMT

Under MiCA, stablecoins fall into one of two regulated categories:

E-Money Tokens (EMTs) reference a single official currency (e.g., USD or EUR). They are economically equivalent to electronic money and must be issued by a credit institution or authorised e-money institution under the EU’s Electronic Money Directive 2 (EMD2). EMT issuers must maintain reserves equal to 100% of outstanding tokens in low-risk, liquid assets. USDC and EURe (Monerium) are examples of tokens that would be classified as EMTs under MiCA.

Asset-Referenced Tokens (ARTs) reference multiple assets, a basket of currencies, or commodities. ARTs require direct ESMA/NCA authorisation and are subject to more stringent governance, reserve, and wind-down requirements than EMTs. Significant ARTs — those exceeding thresholds of 10 million token holders or €5 billion market cap — are supervised directly by the EBA. Tether’s USDT, if structured to reference only USD, would be classified as an EMT; its actual reserve composition and Tether Ltd’s legal structure created uncertainty about its precise MiCA treatment.

Algorithmic stablecoins with no reserve asset backing are prohibited under MiCA.

US Regulatory Approach

As of early 2026, the United States had not enacted comprehensive federal stablecoin legislation, despite multiple legislative proposals. Key proposed frameworks included:

• The GENIUS Act (Senate, 2025): Would require payment stablecoin issuers to hold 1:1 reserves of high-quality liquid assets, obtain state or federal banking authority licences, and submit to Federal Reserve oversight for larger issuers.
• The STABLE Act (House, 2025): Similar reserve and licensing requirements, with emphasis on preventing non-bank issuers from obtaining bank-equivalent privileges.

In the absence of federal law, stablecoin issuers in the US operate under state money transmitter licences. The New York Department of Financial Services (NYDFS) has issued the most comprehensive guidance, requiring NYDFS-supervised stablecoin issuers (including USDC and USDP by Paxos) to maintain 1:1 reserves, publish monthly attestations, and obtain NYDFS approval for reserve composition changes.

MAS Framework (Singapore, August 2023)

The Monetary Authority of Singapore (MAS) finalised its stablecoin regulatory framework in August 2023. Single-currency stablecoins (SCS) pegged to the Singapore dollar or any G10 currency, issued in Singapore and with a market capitalisation above SGD 5 million, must satisfy:

• Reserve backing at 100% par value in high-quality liquid assets
• Monthly reserve reporting and annual audits
• Redemption at par within five business days
• Capital requirements for the issuer
• Prudential requirements on reserve composition (no more than specified proportions in bank deposits, government securities, and money market funds)

Only MAS-regulated entities can issue MAS-recognised stablecoins; recognition carries the right to represent the stablecoin as “MAS-regulated.”

Reserve Requirements and Audit Standards

Across jurisdictions, reserve adequacy is the central compliance concern. Requirements converge around: full par-value backing, high-quality liquid assets (government securities dominate), segregation from issuer’s proprietary assets, monthly publication of reserve attestations, and annual full audits.

Related entries: MiCA, CBDC, Tokenized Deposit

Primary sources: MiCA Regulation — EUR-Lex | MAS Stablecoin Framework | BIS Stablecoin Report