What is a stablecoin? USDT and USDC explained

Stablecoins are crypto tokens designed to stay worth $1. How they work, why traders use them, the risks, and how Singapore regulates them.

A stablecoin is a crypto token designed to keep a steady value, usually US$1. Instead of swinging up and down like Bitcoin, it aims to be boring on purpose.

The best-known stablecoins

• USDT (Tether), the largest by value
• USDC, issued by Circle

Both aim to stay worth exactly one US dollar each.

How do they stay at $1?

Most large stablecoins are backed by reserves: for every token in circulation, the issuer holds roughly a dollar's worth of cash, short-term government bonds or similar assets. In theory, you can always swap one token back for one dollar, which keeps the price close to $1.

Why do people use them?

• To park money without leaving crypto. Traders sell into stablecoins when they want to step aside from price swings.
• To move money quickly, any time of day, including across borders.
• As the main "currency" on crypto exchanges. Many trades are priced in USDT or USDC rather than dollars.

This is why stablecoins are sometimes called the plumbing of crypto. Money moving into stablecoins on exchanges can also be a sign that buyers are getting ready to buy.

The risks

A stablecoin is only as good as what backs it.

• Reserve risk. If the issuer doesn't actually hold enough reserves, or holds risky ones, the token can lose its peg.
• Run risk. If lots of people try to cash out at once, an issuer may struggle to pay everyone.
• Algorithmic stablecoins are the riskiest. TerraUSD, which relied on an algorithm rather than real reserves, collapsed in May 2022 and wiped out billions of dollars.

Stablecoins in Singapore

Since August 2023, MAS has had a framework for stablecoins pegged to the Singapore dollar or a G10 currency and issued in Singapore. Issuers that meet its requirements (on reserves, redemption within five business days and disclosure) can use the label "MAS-regulated stablecoin". Stablecoins without that label don't carry the same protections.

Is a stablecoin an investment?

Not really. It's designed not to go up. Some platforms offer interest on stablecoins, but higher yields usually mean higher risk. Treat any promise of high, steady returns with suspicion.

Learn more about how crypto is regulated in is crypto legal in Singapore?.

General market information for education only, not financial advice. Crypto-assets are highly volatile; never risk money you can’t afford to lose.