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 is converging 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 the vast majority of the stablecoin market, which has grown to over $300 billion as of early 2026.

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 are coalescing around as the standard for payment stablecoins. 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.

Crypto-Collateralized

Some stablecoins are backed by other crypto assets rather than fiat. These typically require over-collateralization (e.g., $150 in ETH to mint $100 of stablecoin) to absorb price volatility. DAI, issued through the MakerDAO protocol, is the most well-known example. This model is 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, erasing over $40 billion in value in a matter of days. 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) can range from 3% to 6% of the transaction value. 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. Regulated issuers like Circle now publish regular attestations reviewed by independent accounting firms, but attestations are point-in-time snapshots, not continuous audits.

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 after Silicon Valley Bank (which held a portion of USDC’s reserves) failed. USDC was fully backed throughout the episode; the depeg was driven by market uncertainty about whether reserves held at SVB would be accessible. The situation resolved within 72 hours when the Federal Reserve guaranteed depositor access, but the episode demonstrated that “fully backed” and “instantly redeemable during a crisis” are different things in practice.

Regulatory Risk

The regulatory framework for stablecoins is evolving rapidly. An issuer that’s compliant today may face new requirements tomorrow. 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 81% within six 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.

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.

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)

Effective 2024–2025, MiCA creates a comprehensive framework for crypto assets in the EU. For stablecoins (“e-money tokens” under MiCA), it requires one-to-one backing in high-quality liquid assets, transparency on reserve composition, and licensing for issuers. USDC has been certified as MiCA-compliant; USDT was delisted from several EU exchanges.

GENIUS Act (United States)

Introduced in 2025, the GENIUS Act defines a “payment stablecoin” category and establishes a licensing framework requiring issuers to choose between federal and state regulatory paths. While still evolving, it signals that the U.S. is moving toward clear rules rather than regulation by enforcement.

CBUAE (Central Bank of the UAE)

The UAE has taken a nuanced approach, with the Central Bank’s Circular 2/2024 restricting foreign stablecoins for retail domestic payments while permitting their use for B2B cross-border transactions. VARA (Virtual Assets Regulatory Authority) in Dubai and the ADGM in Abu Dhabi provide additional licensing frameworks.

MAS (Monetary Authority of Singapore)

Singapore’s Payment Services Act provides a licensing framework for digital payment tokens, with specific provisions for stablecoins including reserve requirements and disclosure obligations.

The direction is clear: jurisdictions are creating rules that bring stablecoins within the regulatory perimeter, requiring reserves, licensing, and compliance obligations similar to other payment instruments. For businesses, this regulatory clarity reduces one of the biggest adoption barriers: uncertainty about whether using stablecoins is permissible and how to do it within the rules.

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. The settlement mechanism changes; the compliance obligations do not.

Where This Is Heading

Stablecoins are an infrastructure evolution in how value moves between institutions and across borders. The market is maturing rapidly: regulatory frameworks are solidifying, 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 jurisdictions you care about? What risks does each stablecoin carry, and how does your provider mitigate them? Does your payment provider’s compliance infrastructure 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.

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