What Is a Stablecoin? Fiat-Backed Stablecoins in Plain English
A token that aims to be worth exactly one dollar or one euro, issued by a company that says it holds the money behind it. What that means, and where it can go wrong.
A stablecoin is a digital token designed to keep the same value as an ordinary currency, usually one US dollar or one euro. A company issues it, says it holds money or similar assets to match every token, and promises to swap tokens back for currency. That promise, and how far you can check it, is the whole story.
How a fiat-backed stablecoin works
- Someone sends the issuer dollars or euros. Usually that is a large business or a payment company, not an individual.
- The issuer creates the same number of tokens and says it holds the money, or assets such as short-dated government debt, in reserve.
- The tokens move on public blockchains such as Ethereum, Base or Solana, from wallet to wallet, at any hour.
- When someone hands tokens back, the issuer destroys them and pays out the currency.
Fiat-backed means the reserve is ordinary money and assets close to it. Kinds backed by other crypto, or by an algorithm, behave differently and are not covered here.
The three you are most likely to meet
| Tracks | Issuer | Where to read about its reserves | |
|---|---|---|---|
| USDC | US dollar | Circle | Circle's transparency page |
| EURC | Euro | Circle | Circle's transparency page |
| USDT | US dollar | Tether | Tether's transparency page |
Each issuer describes its own reserves and publishes attestations on them, prepared by an accounting firm. What sits in reserve is the issuer's claim, checked to the standard of that report: a snapshot at a date, not a full audit. For any large balance, read the issuer's own reports rather than anyone's summary of them, ours included.
Sources: Circle: transparency · Tether: transparency
Which dollar coin to hold, and whether a euro earner should hold one at all, are covered in our comparisons.
Sources: Guide: USDC vs USDT · Guide: USDC vs EURC
Why people get paid in them
Most people paid in stablecoins are not trading. They are freelancers and small businesses with clients abroad, let down by the bank route: a transfer that took days, a fee nobody mentioned, a conversion at a rate they never agreed.
- They move in minutes, at weekends too, and the network fee on a low-cost network is usually cents.
- A dollar coin stays in dollars. Someone paid in dollars can keep dollars without a US bank.
- They sit in a wallet the holder controls, and can be sold back to a bank in pounds, euros or dollars when the holder chooses.
The client does not have to touch crypto for this to work. With a deposit account, the client pays ordinary bank details by ordinary transfer, and what arrives is converted to a stablecoin in your wallet.
What can go wrong
It can lose its peg
The market price can drop below one dollar when people doubt the reserves. USDC fell to about $0.87 in March 2023, when part of its reserves sat at Silicon Valley Bank, and recovered once those deposits were guaranteed. A peg is held up by reserves and confidence. It is not a guarantee.
The issuer is the risk
Your token is a claim on one company. If that company mismanages its reserves, is shut down or fails, what you get back depends on the company and on the law where it operates. Spreading a large balance across issuers spreads that risk. It does not remove it.
The wrong network can cost you the coins
USDC on Ethereum and USDC on Solana are the same coin on different networks. Send it on a network the receiving address does not support and it can be lost, or slow and costly to recover. Check the network as carefully as the address.
Sources: Guide: sent crypto on the wrong network
The issuer can freeze an address
Circle and Tether can both freeze tokens at a specific address, and both have done so, usually at the request of law enforcement. This applies in a wallet only you control too. No wallet, and no service you use, can override it.
How it compares with money in a bank
| Money in a bank | A fiat-backed stablecoin | |
|---|---|---|
| What you hold | A claim on your bank | A claim on the issuer |
| Deposit protection | Usually, up to a limit, such as the FSCS in the UK or the FDIC in the US | None |
| Moves at weekends | Depends on the bank and the payment type | Yes |
| Who can stop it | Your bank | The issuer, at the token level |
| If you lose access | The bank restores it | With a self-custodial wallet, your backup is the only way back |
So a stablecoin is not a better bank balance, or a worse one. It is a claim on a different company, on faster rails, with no deposit protection behind it. Hold in stablecoins what you have a use for, and decide on purpose about the rest.
Where Rampy fits
Rampy moves money between bank accounts and stablecoins. It does not issue a stablecoin, and it does not hold yours. Coins go to a wallet you control: the self-custodial wallet in the app, whose keys Rampy never holds and which you can export to another wallet app, or an address of your own.
A USD or EUR deposit account gives you bank details in your own name. Payments into them arrive in your wallet as USDC or EURC, for 1.99% of each deposit and no flat fee. Selling back to a bank in pounds, euros or dollars is 1.99% + 1.99 below 500, then 0.99% + 1.99 from 500. Both are on the pricing page.
Sources: Rampy: pricing
What you can use depends on the country you verify in. Verification is done once, by our regulated payment partner, and the availability page lists where each product works.
Sources: Guide: non-custodial vs custodial
Give clients ordinary bank details in your own name, and receive what they pay as USDC or EURC in a wallet only you control.
See how getting paid worksFrequently asked
Is a stablecoin the same as a central bank digital currency?
No. A stablecoin is issued by a private company and is a claim on that company. A central bank digital currency would be a claim on the central bank itself. USDC, EURC and USDT are all private.
Is a stablecoin always worth exactly one dollar or one euro?
It aims to be. The market price moves a little either side in normal times, and further under stress. USDC traded at about $0.87 for a short time in March 2023.
Can Rampy freeze my stablecoins?
Rampy does not hold your keys or your coins, so there is no Rampy balance to freeze. The issuer of the token can freeze an address, a power Circle and Tether keep for themselves.
Do I need to understand crypto to get paid in stablecoins?
Not much. Your client pays bank details as usual. You need to know which network your wallet uses before you move coins anywhere else, and to keep your wallet backup safe.