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Stablecoins

Tokens pegged to the dollar: what backs them and how the peg can break.

5 minChecked 4 October 20268 sources

Animation is off, so this lesson is a plain page: one still picture and a few sentences for each step. Turn animation on in the menu to watch it play.

1,000,000 dollars paid in
Issues 1 token per dollar
1,000,000 tokensEach meant to be worth $1
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Step 1 of 4

Dollars in, tokens out

A stablecoin issuer takes in dollars and creates the same number of tokens, each meant to be worth one dollar. Only approved business customers deal with the issuer directly; everyone else buys tokens on an exchange.

  1. 1,000,000 dollars paid in
    Issues 1 token per dollar
    1,000,000 tokensEach meant to be worth $1

    Step 1 of 4

    Dollars in, tokens out

    A stablecoin issuer takes in dollars and creates the same number of tokens, each meant to be worth one dollar. Only approved business customers deal with the issuer directly; everyone else buys tokens on an exchange.

  2. 1,000,000 tokensEach meant to be worth $1
    ReservesMostly short-term US government debt

    Step 2 of 4

    Reserves back the tokens

    The issuer keeps reserves, mostly short-term US government debt and similar assets, so it can pay back a dollar for each token returned.

  3. ReservesMostly short-term US government debt
    About $316 billion of stablecoins4 Oct 2026, nearly all pegged to the dollar
    USDT and USDCAbout four fifths of the total
    Mostly trading and moving money between platforms

    Step 3 of 4

    What they are used for

    About $316 billion of stablecoins existed on 4 October 2026, nearly all pegged to the US dollar. Two, USDT and USDC, made up about four fifths. Most use is trading and moving money between platforms, not shopping.

  4. Price of one token (illustration)
    TerraUSD, May 2022No reserves behind it; collapsed

    Step 4 of 4

    What can go wrong

    The peg can break. In March 2023, $3.3 billion of USDC's reserves was stuck at the failed Silicon Valley Bank and its price fell below 90 cents. TerraUSD, which had no such reserves, collapsed in May 2022. Try it below.

    Try it

    Price of one token

    Holds close to one dollar.

Quick check

Did it stick?

2 questions. Get them right to complete the lesson.

Question 1

Question 1 of 2

What lets an issuer pay back a dollar for each token?

Question 2

Question 2 of 2

Can a stablecoin fall below one dollar?

Or skip ahead to lesson 6: Exchanges.

Sources

Checked 4 October 2026
  1. Primary and secondary markets for stablecoinsFederal Reserve (FEDS Notes)
    • Only approved customers, mostly companies, deal with the issuer directly; everyone else buys tokens on an exchange.
    • In March 2023, $3.3 billion of USDC's reserves was stuck at the failed Silicon Valley Bank and its price fell below 90 cents.
  2. Circle MintCircle
    • The issuer takes in dollars and creates the same number of tokens, and pays back a dollar for each token returned.
  3. USDC transparency and reservesCircle
    • Reserves are mostly short-term US government debt and similar assets.
  4. Stablecoins dataDefiLlama
    • About $316 billion of stablecoins existed on 4 October 2026; USDT and USDC made up about four fifths.
  5. Annual Economic Report 2025, chapter III: the next-generation monetary and financial systemBank for International Settlements
    • Nearly all stablecoins are pegged to the US dollar.
    • Stablecoins serve mainly as a way into and out of crypto trading.
  6. Making sense of stablecoinsVisa
    • Retail-sized payments are a tiny share of stablecoin transfers.
  7. Joint statement by Treasury, Federal Reserve and FDIC, 12 March 2023Federal Reserve
    • USDC recovered once US authorities protected the bank's depositors.
  8. Crypto-enabled fraudster sentenced for orchestrating $40 billion fraudUS Department of Justice (SDNY)
    • TerraUSD, which had no reserve of dollars, collapsed in May 2022.

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