Stablecoins

Stablecoins are a type of digital currency designed to maintain a stable value. For financial professionals, stablecoins represent an important development in the evolution of money. They combine the efficiency of digital assets with the stability required for corporate payments, liquidity management and cross-border transactions.

This page provides financial professionals with the foundation to understand what stablecoins are, how they work and why they matter.

Quick Navigation:

• What Are Stablecoins?
• How Do Stablecoins Work?
• Types of Stablecoins
• Stablecoins vs. Other Digital Money
• Benefits of Stablecoins
• What Are Stablecoins Used For?
• Risks and Challenges of Stablecoins
• Regulatory Context of Stablecoins
• Learn More About Stablecoins with AFP

What Are Stablecoins?

A stablecoin is a type of digital currency (cryptocurrency) designed to maintain a stable value by being “pegged” to a reserve asset, most often the U.S. dollar or short-term government treasuries.

Unlike other cryptocurrencies, such as Bitcoin or Ethereum, which fluctuate widely in price, stablecoins provide consistency and reliability — qualities that are essential for corporate treasury and payments teams.

Every stablecoin transaction is logged on a blockchain (think of it like a shared digital ledger). This makes the transaction transparent, traceable and difficult to alter. The cost to complete a payment is minimal, and you can do so 24/7/365 — that means no waiting for bank cut-off times, and no unnecessary tying up of capital.

How Do Stablecoins Work?

Stablecoins are “tokenized” representations of real-world assets. A token is issued when someone deposits reserves (e.g., U.S. dollars or short-term government securities), and a digital token is created that matches its value, one-for-one.

Here’s a breakdown of the process:

1. Reserve assets are set aside. The issuer denotes the backing asset(s), such as bank deposits or U.S. Treasuries, that guarantee the stablecoin’s value.
2. Regulatory and legal checks are performed. The reserves and the issuing process are reviewed to ensure compliance with regulations and transparency requirements.
3. Tokens are created and programmed. A digital token is minted on a blockchain, often with smart contract features that can automate actions like milestone-based supplier payments or currency conversions.
4. Tokens are distributed to digital wallets. Once created, the stablecoins are issued to users, who hold them in digital wallets (the blockchain equivalent of a bank account).

Because stablecoins are programmable, they’re able to support more than simple payments. For example, a business could release partial payment to a supplier once delivery milestones are met, or automatically consolidate funds into a central treasury account when they reach certain liquidity thresholds.

Types of Stablecoins

Not all stablecoins maintain their peg the same way. There are three main types, distinguished by what backs them.

Fiat-Backed Stablecoins

The most common and widely used type. A centralized issuer holds reserves of fiat currency or short-term government securities and issues tokens at a 1:1 ratio.

Crypto-Backed Stablecoins

Backed by other cryptocurrencies rather than fiat. Because crypto collateral is volatile, these are typically over-collateralized (the collateral is worth more than the tokens issued) and managed by smart contracts. DAI is a well-known example.

Commodity-Backed Stablecoins

Backed by physical commodities, most often gold. The issuer custodies the asset and mints one token per defined unit (for example, one troy ounce of gold). Examples include PAX Gold (PAXG) and Tether Gold (XAUT).

Examples of Stablecoins

The most widely used stablecoins today are U.S. dollar–pegged: USDT (Tether) and USDC (Circle). Others include PayPal USD (PYUSD), DAI (crypto-backed), and PAX Gold (commodity-backed). Their infrastructure is already in place, as companies like Circle, PayPal and Coinbase can issue them, and all that’s needed to transact is a digital wallet.

Stablecoins vs. Other Digital Money

To see how stablecoins fit into the digital money sphere, it helps to compare them with other emerging forms:

• Central Bank Digital Currencies (CBDCs): Issued directly by a government and fully backed by the state. CBDCs provide sovereign security, but carry with them concerns over privacy and competition with banks, so they’re developing at a slower pace.
• Tokenized deposits: Digital versions of traditional bank deposits, issued by private banks. They offer many of the same benefits as stablecoins (programmability, 24/7 access) but are not yet widely interoperable.
• Tokenized treasuries: Government bonds in tokenized form, which can potentially be used for payments or as collateral.
• Tokenized money market funds: Blockchain-based digital representation of traditional fund shares.

Benefits of Stablecoins

The value proposition for stablecoins is often summed up as: faster, cheaper and easier.

• Speed: Transactions settle almost instantly, unlike traditional wire transfers that can take days.
• Cost: Transfers can be completed for less than a dollar, compared to $10 to $25 for international wires.
• Availability: Payments are available 24/7/365, unrestricted by banking hours or cut-off times.
• Global reach: As long as both parties have a digital wallet, transactions can cross borders seamlessly. (More information about innovations in cross-border payments can be found in the AFP Payments Guide: Seismic Shifts Are Coming for Cross-Border Payments, underwritten by Wells Fargo.)
• Flexibility: Stablecoins can support new liquidity models, such as lending them out for yield or using them as collateral.

Benefits for Corporate Payments

For payments teams, stablecoins reduce the cost and delay of cross-border transfers by removing intermediary (correspondent) banks from the chain. Funds move directly between wallets, settling in minutes rather than days and at a fraction of the fees, which is a meaningful advantage for remittances, supplier payments and correspondent-banking flows.

Benefits for Corporate Treasury

For treasury teams, stablecoins enable real-time visibility and movement of cash, programmable payments tied to business rules, and new options for short-term liquidity and yield. They can shorten settlement cycles, reduce trapped cash across accounts, and support 24/7 liquidity management that traditional banking hours can't match.

What Are Stablecoins Used For?

Stablecoins are used wherever speed, low cost and 24/7 availability matter. Common use cases include:

• Cross-border payments and remittances: cheaper, faster international transfers than wires or money-transfer services.
• Corporate treasury and liquidity management: real-time cash movement and programmable payments.
• Merchant and B2B payments: lower-fee settlement; processors such as Stripe, PayPal and Shopify now support stablecoin checkout.
• A store of value: access to a dollar-equivalent asset, particularly in high-inflation economies.
• Trading and settlement: a stable unit for moving in and out of crypto positions without converting to fiat.

Risks and Challenges of Stablecoins

As with anything, stablecoins are not without risks and challenges:

• Liquidity gaps: Most liquidity is concentrated in U.S. dollar–backed stablecoins; other currencies are less supported.
• Technology and integration: Corporates must ensure their treasury systems, ERPs and accounting platforms can connect to wallet providers and exchanges.
• Regulatory uncertainty: While progress has been made, accounting bodies like FASB have not yet fully defined how stablecoins should be treated on balance sheets.
• Counterparty risk: Treasurers must evaluate the trustworthiness of issuers and custodians.
• Market risk: Factors such as market conditions and liquidity issues can cause stablecoins to depeg, i.e., deviate from the value of their underlying fiat currency.
• Internal knowledge gaps: Boards, CFOs and finance teams often lack a clear understanding of how stablecoins work.
• Cost: Converting fiat currencies to stablecoins (onramp) and converting stablecoins back into fiat currencies (offramp) typically involves transaction and redemption fees.
• FDIC coverage: Unlike traditional bank deposits, stablecoins are not backed by FDIC deposit insurance, NCUA share insurance or government guarantees.

The first step is education: making sure all cross-sectional teams share a basic understanding before moving forward.

Regulatory Context of Stablecoins

The passage of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) in the U.S. created the first federal framework for stablecoins. It requires issuers to operate under regulated standards, which lends legitimacy to stablecoins as a payment method and form of liquidity.

The GENIUS Act establishes a dual-track federal and state regime. While federal banking agencies (such as the OCC and Federal Reserve) supervise large or bank-backed issuers, state regulators oversee smaller, state-qualified issuers (issuing under $10 billion) whose home state regimes are certified as equivalent to federal standards. Other bodies, such as the IRS, OFAC, FinCEN, SEC, and FASB, provide binding guidance on taxation, sanctions enforcement, anti-money laundering and fair-value accounting treatment.

Globally, jurisdictions including the European Union (under MiCA), Japan, Singapore, Hong Kong and Brazil have established stablecoin regulatory regimes. While regulatory harmonization across borders is growing based on international standards, treasurers navigating cross-border payments must still monitor jurisdiction-specific licensing and compliance requirements.

Learn More About Stablecoins with AFP

AFP Payments Guide: Seismic Shifts Are Coming for Cross-Border Payments
Innovations like stablecoins are redefining global payment infrastructure. Read this guide, underwritten by Wells Fargo, to discover why cross-border payments are at a turning point.

The Pros and Cons of Stablecoins
Explore the benefits, risks and practical treasury applications of stablecoins.

How to Adopt (or Just Explore) Stablecoins
Learn how treasury teams can evaluate stablecoins, choose providers and launch pilot programs to determine whether stablecoins fit their payment strategy.

What Treasury and Payments Professionals Need to Know About Stablecoins After the GENIUS Act
Stablecoins have been generating significant interest, particularly with the passage of the GENIUS Act. There are practical considerations that treasury and payments professionals should keep in mind when considering stablecoin adoption.

Stablecoin’s Role in Cross-Border Payments
Viewed as both a payment solution and a potential instrument on the balance sheet, treasury teams are seeing a lot of promise in stablecoins.