If you’ve spent any time around crypto, you’ve almost certainly heard the word stablecoin. But if someone asked you to explain it in plain terms, it can be surprisingly hard to nail down.
It’s not volatile like Bitcoin, but it’s not quite the same as a regular dollar either. So what exactly is it, and why should you care? This article breaks it all down — including the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), which President Trump signed into law on July 18, 2025, making it the first major federal crypto legislation in U.S. history.
Let’s get into it.
1. So What Is a Stablecoin, Really?
The simplest way to put it:
A stablecoin is a digital token worth exactly $1.00.
1 USDT = $1. 1 USDC = $1. That price barely moves — and that’s the whole point.
Bitcoin can swing 10–20% in a single day. That kind of volatility makes it impractical as a payment method. Imagine paying for something in BTC today, only to watch its value double — or halve — overnight. Neither scenario feels great.
Stablecoins solve that problem. They keep the benefits of blockchain — fast transfers, global reach, 24/7 availability — while stripping out the price volatility. Think of them as digital cash that moves like crypto but holds its value like a dollar.
Some practical examples
- A freelancer overseas can receive USDC from a U.S. client in minutes, with minimal fees — no banks, no 3–5 business day wait, no wire transfer overhead.
- Traders on crypto exchanges often park funds in USDT between positions rather than cashing out to fiat, keeping them in the ecosystem without exposure to price swings.
- In DeFi (decentralized finance), stablecoins are the primary unit for lending, borrowing, and liquidity provision.
2. Types of Stablecoins — How Does the Peg Actually Hold?
There are three main approaches to maintaining a $1.00 peg. They vary significantly in how they work and how stable they actually are.
| Type | How It Works | Examples | Stability |
|---|---|---|---|
| Fiat-Collateralized | Backed 1:1 by real dollars or short-term Treasuries held in reserve | USDT, USDC | High |
| Crypto-Collateralized | Backed by other crypto assets, typically over-collateralized to absorb volatility | DAI | Medium |
| Algorithmic | Uses smart contract logic to expand/contract supply and maintain the peg | TerraUSD (collapsed) | High risk |
Fiat-collateralized stablecoins are the dominant model. The issuer holds $1 in reserve for every token in circulation. Simple, transparent, and redeemable on demand.
Algorithmic stablecoins, on the other hand, are a cautionary tale. The 2022 Terra/LUNA collapse wiped out tens of billions of dollars when the algorithm failed to maintain the peg under selling pressure. It happened fast, and it was brutal. That event was the catalyst that finally pushed regulators to act.
3. How Big Is This Market? Bigger Than You Might Think
As of 2025, the stablecoin market has grown into a serious piece of global financial infrastructure.
- Total stablecoin market cap: over $300 billion (DefiLlama live data)
- USDT (Tether): ~$159B market cap, daily trading volume exceeding $100B
- USDC (Circle): ~$76B market cap — Circle went public on the NYSE in June 2025
- In 2024, total stablecoin transaction volume surpassed the combined volume of Visa and Mastercard
That last point is worth sitting with. Stablecoins are no longer a niche crypto experiment. They’re becoming core payment infrastructure.
4. What Is the GENIUS Act? — The First Federal Crypto Law
Breaking Down the Name
GENIUS Act stands for:
Guiding and Establishing National Innovation for U.S. Stablecoins Act
It was introduced by Republican Senator Bill Hagerty on May 21, 2025. Here’s how it moved through Congress:
| Stage | Date | Result |
|---|---|---|
| Introduced | May 21, 2025 | Senator Bill Hagerty (R-TN) |
| Senate passed | June 17, 2025 | 68–30 bipartisan vote (17 Democrats joined 51 Republicans) |
| House passed | July 17, 2025 | 308–122 (passed without amendment) |
| Signed into law | July 18, 2025 | President Trump — first federal crypto law in U.S. history |
Why Was This Law Needed?
Before the GENIUS Act, stablecoins operated in a regulatory gray zone. Issuers had no standardized reserve requirements, no mandatory audits, and no consistent consumer protections. The market was essentially self-regulated — which is a polite way of saying unregulated.
After Terra/LUNA, and with stablecoin market caps pushing into the hundreds of billions, regulators couldn’t credibly look the other way any longer. The GENIUS Act is the result of that reckoning.
5. What the GENIUS Act Actually Does — The Key Provisions
The full text is dense, but here’s what actually matters:
① 1:1 Reserve Requirement (100% Backing)
Every stablecoin in circulation must be backed by an equivalent dollar amount of approved assets. The permitted reserve assets are tightly defined:
- Cash and Federal Reserve deposits
- Demand deposits at insured banks and credit unions
- U.S. Treasury bills with a maturity of 93 days or less
- Overnight repurchase and reverse repurchase agreements backed by Treasuries
- Government money market funds (MMFs)
No creative accounting. No opaque offshore holdings. One dollar issued, one dollar held.
② Monthly Public Disclosures
Issuers must publish monthly reports detailing the composition of their reserves. Issuers with more than $50 billion in outstanding stablecoins must also submit audited annual financial statements. The idea is straightforward: let the public verify the backing.
③ Licensed Issuers Only
Only certain entities can issue payment stablecoins:
- Banks and credit unions (through subsidiaries)
- Non-bank financial institutions approved by the Fed, FDIC, or OCC
Issuers above $10 billion in outstanding issuance fall under direct federal oversight (OCC for non-banks). Smaller issuers can opt into a state-level regulatory regime, provided it meets federal standards.
④ AML and Sanctions Compliance
Issuers are subject to the Bank Secrecy Act (BSA) and must implement AML and sanctions compliance programs. They’re also required to have the technical capability to freeze or burn specific tokens when legally required — a notable addition for law enforcement purposes.
⑤ Consumer Protection in Bankruptcy
If an issuer goes insolvent, stablecoin holders’ claims take priority over all other creditors. The reserved assets are excluded from the debtor’s estate. In practice, this means holders should be made whole before anyone else.
⑥ No Misleading Marketing
Issuers cannot imply their stablecoins are backed by the U.S. government, covered by FDIC insurance, or are legal tender. They are none of those things, and consumers need to know it.
Quick Reference Table
| Provision | Detail |
|---|---|
| Reserve requirement | 1:1 backing in cash, Treasuries, or equivalent safe assets |
| Disclosure | Monthly reserve composition reports / annual audit for large issuers |
| Eligible issuers | Licensed banks, credit unions, or approved non-bank institutions |
| Regulatory split | >$10B issuance → federal (OCC) / ≤$10B → state option |
| AML/Sanctions | BSA compliance required; freeze/burn capability mandatory |
| Bankruptcy priority | Stablecoin holders’ claims senior to all other creditors |
| Legal classification | Payment stablecoins are neither securities nor commodities |
6. Why It Matters — The Bigger Picture
Dollar Dominance as Policy
Treasury Secretary Scott Bessent was explicit: “We are going to keep the U.S. the dominant reserve currency, and we will use stablecoins to do it.” The logic is sound. Tether alone is already one of the largest holders of short-term U.S. Treasuries. As stablecoin adoption grows, demand for U.S. government debt grows with it — a useful dynamic as Japan and China have been trimming their Treasury holdings.
Other Jurisdictions Are Moving Too
The U.S. isn’t acting in isolation. A regulatory race is underway:
| Region | Framework | Status |
|---|---|---|
| United States | GENIUS Act | In force as of July 2025 |
| European Union | MiCA (Markets in Crypto-Assets) | Phased rollout from 2024 |
| Hong Kong | Stablecoin Ordinance | Passed May 2025 |
The Criticism Worth Noting
Not everyone is enthusiastic. Consumer Reports argued the bill doesn’t provide adequate consumer protections and allows big tech companies to engage in bank-like activities without being held to full banking standards. There’s also a structural concern: stablecoins aren’t FDIC-insured, and a large-scale run on a major issuer could have systemic consequences. These are legitimate points, and worth keeping in mind as implementation unfolds.
7. USDT vs. USDC — Which One Should You Use?
These two dominate the market, but they’re meaningfully different.
| USDT (Tether) | USDC (Circle) | |
|---|---|---|
| Issuer | Tether Limited (affiliated with Bitfinex) | Circle Internet Group (U.S.) |
| Market cap | ~$159B | ~$76B |
| Daily volume | #1 globally, >$100B/day | #2 |
| Transparency | Improved, but historically scrutinized | High — regular audits, public reports |
| Regulatory posture | Moderate | Strong — NYSE listed, global licenses |
| Best suited for | High-volume trading, exchange liquidity | Institutional use, compliance-sensitive applications |
For most developers and IT professionals getting started: USDC is the cleaner choice. It’s better audited, more regulatory-friendly, and Circle’s NYSE listing adds a layer of institutional credibility. USDT wins on raw liquidity if you’re actively trading across exchanges.
8. How to Get Started With Stablecoins
If you want to actually use stablecoins rather than just read about them, here’s the practical path:
Step 1 — Open an exchange account Major U.S.-friendly options include Coinbase (Circle’s primary partner for USDC), Kraken, and Binance.US. KYC (Know Your Customer) verification is required on all regulated platforms.
Step 2 — Purchase stablecoins You can buy USDC or USDT directly with USD on most exchanges. No need to go through Bitcoin first unless you’re on a platform that requires it.
Step 3 — Choose a wallet (optional) If you’re building on top of stablecoins or using DeFi:
- MetaMask — Ethereum and EVM-compatible chains; most widely supported
- Phantom — Solana ecosystem (USDC is popular on Solana)
- Ledger / Trezor — Hardware wallets for cold storage; best security
Step 4 — Always verify the network before sending USDT runs on Ethereum (ERC-20), Tron (TRC-20), BNB Chain, and others. USDC is available on Ethereum, Solana, Base, and more. Sending to the wrong network means your funds are gone. Always double-check, and test with a small amount first.
9. What Are the Real Risks?
Stablecoins are genuinely useful, but they’re not risk-free.
No FDIC insurance. Bank deposits up to $250,000 are federally insured. Stablecoins are not. If the issuer fails, you’re a creditor — though the GENIUS Act does now give you priority status in bankruptcy.
Smart contract risk. If you’re using stablecoins in DeFi protocols, bugs in the underlying smart contracts can result in permanent loss of funds. This has happened before.
Regulatory flux. The GENIUS Act establishes a framework, but implementing regulations are still being written. The FDIC published its proposed rulemaking in December 2025, and more is coming. The rules will evolve.
Avoid algorithmic stablecoins. This one is non-negotiable. If a stablecoin maintains its peg through algorithmic mechanisms rather than actual reserves, stay away. Terra/LUNA was not an edge case — it was a demonstration of what happens when the mechanism breaks under pressure.
Wrapping Up!
Stablecoins have crossed the threshold from experimental technology to legitimate financial infrastructure. With over $300 billion in market cap and transaction volumes exceeding Visa and Mastercard combined, they’re no longer peripheral to the financial system — they’re increasingly part of it.
The GENIUS Act is essentially the U.S. government acknowledging that reality and deciding to shape it rather than ignore it. The core principle — “if you issue a dollar-pegged token, you need to hold a real dollar behind it” — is simple. But codifying it in federal law, with enforcement mechanisms and consumer protections attached, changes the landscape significantly.
For anyone working in fintech, payments, or distributed systems, understanding stablecoins and the regulatory framework now governing them isn’t optional. It’s table stakes.
References & Further Reading
- White House — Official GENIUS Act Fact Sheet
- Congress.gov — GENIUS Act Full Text (S.1582)
- FDIC — Proposed Rulemaking on GENIUS Act Implementation (Dec 2025)
- World Economic Forum — Global Impact of the GENIUS Act
- DefiLlama — Live Stablecoin Market Data
- CoinMarketCap — Stablecoin Rankings