How a fiat-backed stablecoin keeps its value
The issuer creates, or mints, tokens when it receives money and destroys, or burns, them when a holder redeems. The money received is the reserve, typically bank deposits and short-dated government debt in the token's currency.
The peg holds on the market through arbitrage. If the token trades below one unit, firms that can redeem with the issuer buy it cheaply and redeem at par, and if it trades above, they mint and sell.
The peg is therefore only as good as the reserve and the right to redeem. A token whose reserve is doubted, or whose redemptions are paused, can depeg.
Why a fiat-backed stablecoin matters in payments
A stablecoin moves on a blockchain at any hour and is not tied to bank opening times. That makes the fiat-backed kind the usual choice for crypto checkouts, supplier payments across borders, card top-ups and the quote side of exchange trading pairs.
A product that accepts one takes on questions a card payment does not raise: which networks to support, who the issuer is and where it is authorised, and how the tokens are turned back into money in a bank account. MiCA's rules for such a token, redemption at par among them, sit under its e-money token category.
Fiat-backed, crypto-backed or algorithmic?
- Crypto-collateralised stablecoin
- Backed by other crypto-assets locked in smart contracts, usually worth more than the tokens issued, to absorb price falls.
- Algorithmic stablecoin
- Tries to hold the peg by expanding and shrinking supply, with little or no reserve behind it.
- E-money token
- The legal category in EU law. Fiat-backed stablecoin is the market's word, and also covers tokens issued outside the EU's rules.
Where a fiat-backed stablecoin shows up in a platform
Modules that do the work
- CheckoutA hosted checkout for cards, wallets, bank payments and crypto, routed to the best provider.
- Custody & walletsWallets on every major chain, with MPC custody from leading providers or your own keys.
- FXCurrency conversion with live rates, your margins and the liquidity provider you choose.
- PayoutsMoney out to bank accounts, cards and wallets, on the rail that fits each payment.
Platforms that need it
Guides that go deeper
- Stablecoin payments for EU merchants: MiCA, USDC and the Travel RuleWhat a stablecoin checkout for EU merchants needs: MiCA and payment licences, why USDC and not USDT, Travel Rule checks on self-hosted wallets, euro settlement and refunds.
- Stablecoin B2B payments: how paying suppliers abroad worksHow a stablecoin payment to a supplier abroad moves, from euros in to local currency out, what changes against correspondent banking, and the rules in the EU, the UK and the UAE.
Where it is written
The laws and standards this page's facts come from.
General information, not legal advice: what applies to you depends on your services and your market.