We use necessary cookies for site function. For analytics and marketing, we need your consent. You can change your mind anytime. Privacy Policy
What Is a Stablecoin? How USDC and Stablecoins Work on Stellar
Olvis Gil · September 25, 2026 · 8 min readA stablecoin is a cryptocurrency designed to maintain a stable value by being pegged to an external asset — most commonly a fiat currency like the US dollar. While Bitcoin and Ethereum swing 10% in a day, a well-designed stablecoin holds its peg, making it usable for payments, savings, and commerce. Stablecoins have grown into a market worth hundreds of billions of dollars and now settle more value annually than many traditional payment networks.
Why do stablecoins matter?
Volatility is the reason most people never spend crypto. Stablecoins solve that: they behave like digital dollars or euros that can move at blockchain speed. That unlocks real use cases — cross-border remittances that settle in seconds for under a cent, dollar savings for people in high-inflation economies, 24/7 settlement for businesses, and the base currency of nearly all DeFi.
The four types of stablecoins
Each token is backed 1:1 by cash or cash equivalents (like short-term US Treasuries) held in reserve by the issuer. USDC (Circle) and USDT (Tether) are the dominant examples. This is the most widely used and most regulated model.
Backed by other cryptocurrencies locked in smart contracts, usually over-collateralized (e.g., $150 of ETH backing $100 of stablecoin) to absorb price swings. DAI is the best-known example.
Pegged to physical assets like gold (PAXG) — each token represents a claim on a specific amount of the commodity held in custody.
Maintain their peg through supply-and-demand algorithms rather than reserves. This model proved fragile — the 2022 collapse of TerraUSD (UST), which erased roughly $40B in days, remains the definitive cautionary tale.
How fiat-backed stablecoins work (USDC example)
USDC is issued by Circle, a US-regulated financial company. When a customer deposits one US dollar, one USDC is minted; when they redeem, the USDC is burned and the dollar is returned. Circle holds reserves in cash and short-duration US Treasuries and publishes regular third-party attestations. The token itself is just a representation of that claim — which is why reserve transparency is the single most important factor in trusting any fiat-backed stablecoin.
Stablecoins on Stellar
Stellar was designed for exactly this: issuing and moving value. Its built-in asset model means stablecoins are first-class citizens of the network, not contract tokens — they settle in ~5 seconds with fees around 0.00001 XLM.
The anchor network is Stellar's secret weapon: regulated financial institutions (anchors) issue fiat-backed tokens and provide cash-in/cash-out points. The MoneyGram integration, for example, lets users convert USDC to physical cash at hundreds of thousands of locations worldwide — no bank account required. Learn how assets are issued in our guide to issuing an asset on Stellar.
Risks to understand
Depeg risk — market stress can push a stablecoin off its peg; even USDC briefly depegged when part of its reserves were caught in the Silicon Valley Bank failure. Counterparty risk — fiat-backed coins are only as sound as their issuer's reserves and redemption guarantees. Regulatory risk — rules like the EU's MiCA framework and US stablecoin legislation are reshaping which coins can operate where. And model risk — purely algorithmic designs have repeatedly failed under stress.
What can you build with stablecoins?
Because they are programmable, stablecoins are building blocks: remittance apps, payroll in USDC, liquidity pools and AMMs, lending markets, and smart contract applications that need a stable unit of account. If you want hands-on practice, the Anchors course covers exactly how fiat on- and off-ramps work on Stellar.
Frequently asked questions
A stablecoin is a cryptocurrency designed to hold a steady value — usually pegged 1:1 to a fiat currency like the US dollar. It combines the stability of traditional money with the speed and programmability of blockchain.
Fiat-backed stablecoins from regulated issuers like Circle (USDC) publish regular reserve attestations and are considered the safest. Risks remain: depegging, issuer insolvency, and regulatory change. Algorithmic stablecoins have historically been the riskiest.
Both are dollar-pegged fiat-backed stablecoins. USDC (Circle) is known for transparency with regular attestations and US regulatory alignment; USDT (Tether) is larger by volume but has faced more scrutiny over its reserves. Both are available on Stellar.
Stablecoin transfers settle in seconds, work 24/7/365, cost a fraction of a cent on networks like Stellar, and are programmable — you can build them into apps, payroll, remittances, and DeFi. Bank wires take days and close on weekends.
Yes. "Depegging" happens when market price drifts from the intended value. Even USDC briefly traded near $0.87 during the 2023 Silicon Valley Bank crisis before recovering. Diversification and choosing transparent issuers mitigates this risk.
References
[1] USDC — Circle