Stablecoins explained a guide to types uses and work

Estimated reading time: 6 minutes · Last updated: 2026-08-11

Stablecoins have moved from a niche crypto instrument to a potential backbone for everyday payments, a trajectory reinforced by clearer regulation and mounting interest from traditional finance. Since their emergence in 2014, stablecoins have grown rapidly, now representing a substantial share of crypto activity and prompting governments to design rules that balance consumer protection with innovation. This primer explains what stablecoins are, how they’re used, the different forms they take, the regulatory landscape shaping them, and who the major players are as the ecosystem evolves toward broader adoption. The story also highlights the tension between private digital money and public money in the form of central bank digital currencies, and what that means for payments in the real world.

Stablecoins could come to play a significant role in the future of digital commerce, evolving from trading tools to real-world payment infrastructure.

Jennifer Lorentz, Senior Managing Counsel, Regulatory, Mastercard

What stablecoins are and how they differ from other crypto assets

A stablecoin is a digital asset usually issued by a private company and transferred through a blockchain. It was developed to facilitate crypto asset transactions and is generally pegged to a stable reference asset such as the U.S. dollar.

A digital asset encompasses a range of forms beyond stablecoins, including private cryptocurrencies, central bank digital currencies and tokenized assets like tokenized bonds or gold. By contrast with free-floating cryptocurrencies such as Bitcoin, stablecoins aim for less price volatility by anchoring value to an asset or mechanism.

Regulators and legislators are increasingly focused on stablecoins pegged to a single currency and the accompanying reserve management, redemption rights and peg stabilization requirements. These safeguards are central to how policymakers expect stablecoins to fit into the broader financial system and to what extent they should be integrated with existing payment rails or subject to new oversight.

How stablecoins are used in payments today

Stablecoins can be used to buy or sell crypto assets, but they’re increasingly being deployed for everyday payments. When you hold a stablecoin in a digital wallet and transfer it to another wallet via the blockchain, it can function much like electronic money for purchases and transfers.

Mastercard has integrated stablecoins into its network by enabling wallets to fund purchases with stablecoins and by enabling merchants to receive payments in stablecoins regardless of how a consumer pays, with automatic conversion to local fiat at the point of sale in many cases. This can lead to faster settlement and better liquidity management for businesses.

Beyond direct wallet-to-wallet transfers, stablecoins are being tested and used for cross-border payments, including remittances, which aim to deliver faster, lower-cost international transactions without traditional banking intermediaries. They’re also explored for micropayments, payroll for global or remote workforces, escrow arrangements and as a stable intermediary asset for currency conversions and trading.

Types of stablecoins

Stablecoins come in several core forms, each with a distinct mechanism to maintain value. Fiat-backed stablecoins are pegged to a single fiat currency and backed by reserves held by the issuer in order to maintain parity with the reference asset.

Commodity-backed stablecoins are pegged to physical commodities such as gold or oil and tied to those assets’ market value. This adds a tangible asset layer to the peg, though the effectiveness depends on the integrity of the reserve.

Crypto-backed stablecoins are collateralized by other cryptocurrencies, often over-collateralized to absorb price volatility and maintain the peg.

Algorithmic stablecoins rely on software-driven supply changes to adjust the number of coins in circulation in response to demand, rather than maintaining a reserve, though recent industry behavior has reduced reliance on pure algorithmic models.

Regulation and global landscape

Stablecoins are subject to a growing but uneven global regulatory patchwork. Beyond the United States and European Union, jurisdictions such as Hong Kong, Singapore, the United Arab Emirates and Japan have established or advanced regulatory frameworks that emphasize reserve safeguards, redemption rights and prudential oversight.

In Hong Kong, the Stablecoins Ordinance (2025) establishes a licensing regime for fiat-referenced stablecoin issuers and places issuance activities under supervision, representing a comprehensive framework in Asia.

Singapore’s stablecoin framework (2023–2024) requires reserve backing, redemption at par, capital requirements and disclosures for qualifying stablecoins, creating a clear regulatory pathway for regulated issuers.

The UAE introduced its Payment Token Services Regulation in 2024, creating a licensing regime for stablecoin issuance, custody, transfer and conversion, while imposing reserve and consumer-protection requirements and restricting algorithmic stablecoins.

Japan’s 2023 revised Payment Services Act created one of the world’s first dedicated stablecoin regimes, limiting issuance of fiat-backed stablecoins to regulated entities and establishing a framework for redemption rights, consumer protection and oversight.

Major players and what’s next

The stablecoin field is led by the issuers of the two largest coins by total value: Tether and USDC. New entrants include PayPal, which launched its own U.S. dollar stablecoin in 2023, and Fiserv, which announced a digital asset platform anchored by its own stablecoin for financial institutions.

Mastercard has announced new capabilities and partnerships with many of these players to support multiple stablecoins on its network, aimed at broader adoption and more seamless settlement. In June, a broad consortium of banks and payment networks, including Mastercard, announced Open USD, a new stablecoin designed to lower costs and improve scalability to create a more open, interoperable infrastructure for moving money across the digital economy.

The broader ecosystem also envisions increasing integration of stablecoin-related services within traditional banks through crypto-bank partnerships, and some expect banks to issue their own stablecoins or new digital versions of today’s commercial deposits.

Outlook for stablecoins

What to watch next

As stablecoins move toward broader real-world use, the key to widespread adoption will be a combination of transparent reserve practices, robust regulatory oversight and interoperability with existing payment rails. The industry appears to be heading toward clearer rules and more mature infrastructure, even as regulatory sovereignty, central bank digital currency initiatives and market dynamics continue to shape how stablecoins are integrated into everyday commerce and cross-border settlement. Watch for how Open USD and Mastercard’s partnerships influence the speed and scale of on-ramp and off-ramp capabilities across wallets and merchants.