Stablecoins explained: what keeps them at $1, and what happens when they slip

Stablecoins are the dollars of crypto, worth roughly $284 billion. Here's how the good ones hold $1, the two times the peg broke, and the four-question check before you trust one.

A stablecoin has one job: be boring. One coin, one dollar, every day.

Most days, that's exactly what happens. And that's why stablecoins became the plumbing of crypto, the thing people park in between trades, send across borders and use as "cash" inside the crypto world. The total is now about $284 billion, according to CoinGecko's stablecoin tracker on 15 November 2026.

But "stable" is a promise, not a law of physics. Here's what actually keeps that promise, and what happens when it breaks.

The short version

A stablecoin is a token designed to stay worth $1.
The good ones are backed by real reserves: cash and short-term US government debt, and you can redeem one coin for one dollar.
The peg has broken before. USDC briefly fell to about 86 cents in 2023. TerraUSD, which had no real reserves, collapsed to almost zero in 2022.
The US now has a stablecoin law, the GENIUS Act, requiring 100% reserve backing with liquid assets.
The check: what backs it, can you redeem it, who audits it, and where are the reserves held?

How a stablecoin stays at $1

The model that works is simple: for every coin in circulation, the issuer holds a dollar (or something almost as safe), and anyone eligible can swap the coin back for that dollar.

Circle, which issues USDC, says each USDC is redeemable 1:1 for US dollars and fully backed by reserves held separately from Circle's own money. Most of those reserves sit in an SEC-registered government money market fund holding cash, short-dated Treasuries and overnight repos, with holdings published weekly and monthly assurance from a Big Four accounting firm (Circle transparency page). Tether says USDT is 100% backed by its reserves too (Tether transparency page).

Redemption is the magic. If the coin trades at 99 cents, someone can buy it cheap and redeem it for a full dollar. That arbitrage pulls the price back to $1.

The day USDC slipped

On Friday, 10 March 2023, Silicon Valley Bank failed. Circle had $3.3 billion of USDC's reserves deposited there, about 8% of the total (Circle).

Panic did the rest. USDC fell as low as about 86 cents in the late-Friday sell-off (CoinDesk). When US regulators said on Sunday that all SVB depositors would be made whole, it climbed back to its peg.

The lesson: even a well-backed stablecoin is only as safe as the places its reserves are kept.

The day TerraUSD died

TerraUSD (UST) was different. It wasn't backed by dollars. It tried to hold $1 with an algorithm, by being swappable for a sister token, LUNA (SEC).

In May 2022, that mechanism failed. UST lost its peg and it and its sister tokens fell close to zero. The SEC says the collapse wiped out about $40 billion of market value nearly overnight, and a jury later found Terraform and its founder Do Kwon liable for fraud (SEC).

The lesson: a stablecoin without real reserves isn't a stablecoin. It's a bet that people won't all leave at once.

The new rules

The US GENIUS Act became law on 18 July 2025. It requires stablecoin issuers to hold 100% reserve backing in liquid assets like US dollars or short-term Treasuries, and to publish what's in those reserves every month (White House fact sheet).

That's a big step toward making "stable" mean stable. It doesn't cover every stablecoin in the world, so the check below still matters.

The four-question check

What backs it? Cash and short-term government debt beat crypto collateral, and crypto collateral beats an algorithm.
Can you redeem it? Who can swap it for dollars, how fast, and at what minimum?
Who checks the reserves? Look for regular, published attestations by a recognised accounting firm.
Where are the reserves held? As USDC showed, the bank matters.

If a stablecoin can't answer all four clearly, treat it as a risk asset, not cash.

Questions people ask

How do stablecoins keep their value at $1?

Reserve-backed stablecoins hold cash and short-term government debt equal to the coins in circulation and let eligible holders redeem one coin for one dollar. That redemption, and the arbitrage it enables, pulls the market price back to $1.

Has a stablecoin ever lost its peg?

Yes. USDC fell to about 86 cents in March 2023 after Silicon Valley Bank, which held $3.3 billion of its reserves, failed, then recovered once regulators protected depositors. TerraUSD lost its peg in May 2022 and collapsed to near zero.

What is the difference between USDC and TerraUSD?

USDC is backed by cash and short-term US government debt and is redeemable for dollars. TerraUSD was an algorithmic stablecoin that relied on swaps with its sister token LUNA rather than reserves, and that mechanism failed in 2022.

What does the GENIUS Act require from stablecoin issuers?

Signed into US law on 18 July 2025, it requires 100% reserve backing with liquid assets such as US dollars or short-term Treasuries and monthly public disclosure of reserve composition.