A stablecoin is a digital token designed to maintain a stable value, typically by pegging to a fiat currency like the US dollar.
There are four main types of stablecoins, defined by what backs them:
- Fiat-backed
- Crypto-backed
- Commodity-backed
- Algorithmic
Two newer categories, hybrid and yield-bearing, are also gaining ground as the market matures. The different types of stablecoins vary significantly in risk, transparency, and regulatory treatment.
There’s a second way to look at this, too: whether a stablecoin is centralized, meaning one issuer controls it, or decentralized, meaning a protocol governs it instead.
Understanding the different types of stablecoins matters because the backing mechanism determines how stable, transparent, and risky a given stablecoin actually is in practice, which is why not all stablecoins are created equal.
Fiat-backed stablecoins
A fiat-backed stablecoin is backed by cash or cash-equivalent reserves held by a centralized issuer. For every token in circulation, the issuer holds an equivalent amount in reserve, typically US dollars, short-term Treasury bills, or other highly liquid instruments. Holders can redeem their tokens for the underlying fiat, and independent third parties conduct regular attestations to confirm the reserves exist.
This is the most common and largest category by market cap. The biggest fiat-backed stablecoin examples are Tether's USDT and Circle's USDC, which together account for roughly 80% of total stablecoin supply as of June 2026. Both are dollar-pegged and fiat-collateralized stablecoins, though they differ in aspects such as reserve transparency and reporting cadence.
Ripple USD (RLUSD) is Ripple's institutional-grade, USD-denominated fiat-backed stablecoin. It’s issued by Standard Custody & Trust Company, which holds a New York limited purpose trust company charter granted by NYDFS. RLUSD runs on multiple chains, including the XRP Ledger (XRPL), and is built for the kind of compliance-heavy, high-volume cross-border payments that financial institutions and enterprises need.
Fiat-backed stablecoins are the dominant choice for payments, treasury management, and institutional settlement because they are straightforward, redeemable, and operate within existing regulatory frameworks. In the US, the GENIUS Act establishes a federal framework for fiat-backed stablecoins for payment. In the EU, MiCA classifies them as e-money tokens, subject to reserve and licensing requirements.
Commodity-backed stablecoins
A commodity-backed stablecoin is a digital token where each unit represents a claim on a physical asset, most commonly gold, held in custody by the issuer. The token tracks the price of the underlying commodity rather than a fiat currency, so its value moves with the market price of that asset.
Gold-backed stablecoins are the leading example of this category, with Paxos Gold (PAXG) and Tether Gold (XAUT) as the two leading examples, each representing one fine troy ounce of gold held in professional vaults. Holders can, in principle, redeem tokens for physical gold, though doing so in practice involves minimum thresholds and logistics. The real advantage over holding physical gold directly is that these tokens trade on-chain and can be transferred globally at any time.
Commodity-backed stablecoins function as a form of tokenized real-world assets: they bring an illiquid, custody-intensive asset onto blockchain rails, making it divisible, transferable, and accessible without the friction of physical settlement. The trade-off is that the token’s value is not stable in the way a dollar-pegged stablecoin’s is: it fluctuates with the price of the underlying commodity. An investor holding PAXG is exposed to gold price movements, not just counterparty or smart contract risk.
The main draw here is store-of-value and inflation hedging for users who want gold exposure with blockchain liquidity, as well as use as a collateral asset in DeFi protocols that accept commodity-backed tokens.
Crypto-backed stablecoins
A crypto-backed stablecoin is a digital token pegged to a fiat value but backed by cryptocurrency rather than fiat or a physical asset. Because crypto collateral is volatile, these stablecoins are typically overcollateralized: a user deposits significantly more in crypto than the value of stablecoins they receive, creating a buffer against price swings.
MakerDAO's DAI is the best-known example of a crypto-collateralized stablecoin. To mint DAI, a user locks ETH or other approved assets in a smart contract at a collateralization ratio of roughly 150 percent or more. If the collateral value drops below a set threshold, the protocol automatically liquidates the position to keep DAI stable. MKR token holders govern the whole system rather than a central company, which makes DAI one of the more prominent decentralized stablecoins on the market.
The advantages are decentralization and transparency: there is no single issuer holding reserves, and all collateral is visible on-chain. On the downside, the system is more complex and less capital-efficient, since users have to lock up more value than they get back, and a severe market crash can liquidate collateral faster than the protocol can absorb it. Smart contract risk is also a factor: a bug or governance failure can threaten the peg in ways that do not apply to a fiat-backed stablecoin sitting on reserves in a bank.
Crypto-backed and crypto-collateralized stablecoins are most commonly used in DeFi protocols, where they serve as a stable medium of exchange and collateral, without requiring trust in a centralized custodian.
Algorithmic stablecoins
An algorithmic stablecoin attempts to maintain its peg through a software mechanism that expands or contracts token supply in response to demand, rather than holding collateral in reserve. The theory is that if the price rises above the peg, the protocol mints new tokens to bring it back down. If it falls below the peg, tokens are burned, or holders are offered incentives to reduce supply. Many designs in this category, sometimes called seigniorage stablecoins, use a two-token model: one stable token, and a second governance or absorption token that takes on the volatility.
The track record is poor. TerraUSD (UST) is the defining cautionary case. In May 2022, a loss of confidence triggered a bank-run dynamic: as UST fell below its peg, the mint-and-burn mechanism flooded the market with LUNA, its companion token, which itself collapsed in value, destroying the mechanism meant to defend the peg. Roughly $40 billion in combined market value was wiped out within days.
Frax Finance represents a more measured approach: a fractional-algorithmic model where part of the supply is backed by real collateral and part is managed algorithmically. This hybrid structure sits between a pure algorithmic design and a fully collateralized one, and has proven more resilient, though it still carries more risk than a fully backed stablecoin.
Regulatory frameworks have largely closed the door on purely uncollateralized designs like this one. The GENIUS Act requires payment stablecoins to be fully backed, and MiCA does not provide a licensing path for uncollateralized e-money tokens. The practical conclusion is that algorithmic stablecoins without collateral backing face significant regulatory and structural headwinds going forward.
Emerging types: hybrid and yield-bearing stablecoins
As the market has matured past the four core stablecoin types, two newer categories have started to emerge: hybrid and yield-bearing stablecoins.
A hybrid stablecoin combines more than one backing mechanism, typically a mix of fiat collateral and algorithmic supply management, as in the Frax model, to balance stability with capital efficiency. The goal is to reduce the over-collateralization burden of crypto-backed designs while avoiding the fragility of pure algorithmic models.
A regular stablecoin holds its value. A yield-bearing stablecoin also pays you a return for holding it. The company issuing the stablecoin invests its reserves in something like short-term government debt, such as Treasury bills, or by deploying collateral into DeFi lending protocols, then passes some of that income back to the user. Staking stablecoins earns a return in a different way: users deposit their stablecoins directly into a protocol and earn yield in exchange for providing liquidity or stability.
That's the real distinction: with a yield-bearing stablecoin, the issuer generates the return for you. With a staking stablecoin, you generate the return yourself by putting your funds to work. It matters because yield-bearing tokens are often structured differently from ordinary payment stablecoins, specifically so they avoid being classified the same way under financial regulations.
The GENIUS Act explicitly bars interest payments to holders of payment stablecoins, and MiCA similarly prohibits interest on e-money tokens. As a result, many yield-bearing products are structured as separate investment products or securities, rather than as payment instruments.
The use cases for hybrid and yield-bearing stablecoins are primarily in DeFi, as collateral, for liquidity provision, or as yield-generating instruments, rather than in institutional payments, where regulatory clarity and reserve simplicity remain the priority.
Popular stablecoins: examples and comparison
The table below is a stablecoins list covering examples of stablecoins from each category. There are thousands of stablecoins across different blockchains and designs, but a small number account for the vast majority of market cap. For a live list of top stablecoins and current figures, DeFiLlama's stablecoin dashboard tracks the top stablecoins in real time; any figures below reflect conditions as of mid-2026 and will change.
| Name | Type | Backing | Issuer | Network(s) |
|---|---|---|---|---|
| USDT | Fiat-backed | USD, T-bills, other assets | Tether | Ethereum, Tron, others |
| USDC | Fiat-backed | USD and short-term Treasuries | Circle | Ethereum, Solana, others |
| RLUSD | Fiat-backed | USD and cash equivalents | Standard Custody & Trust | XRP Ledger, Ethereum, others |
| DAI | Crypto-backed | ETH and other crypto (overcollateralized) | MakerDAO (decentralized) | Ethereum |
| PAXG | Commodity-backed | Physical gold (1 oz per token) | Paxos | Ethereum |
| USDG | Fiat-backed | USD reserves | Global Dollar Network | Ethereum |
USDT and USDC are the two largest stablecoins by market cap and the most widely used for trading, payments, and DeFi. The practical difference between them comes down to transparency: USDC undergoes monthly third-party attestations of its reserves with detailed disclosure, while USDT has historically provided less granular reporting, though both maintain the dollar peg.
RLUSD is the institutional option among these examples of stablecoins. It's issued by Standard Custody & Trust Company, which holds a New York limited purpose trust company charter granted by NYDFS, with segregated reserves held at BNY Mellon and verified monthly. It runs on the XRP Ledger and Ethereum, as well as other blockchains, and is built for compliance-heavy enterprise use.
There is no single best stablecoin. The right choice depends on the use case. For regulated payments and institutional settlement, fiat-backed stablecoins with strong reserve transparency, such as USDC or RLUSD, are the practical choice. For on-chain and DeFi activity where decentralization matters, crypto-backed options like DAI may be preferable. For gold exposure on blockchain rails, commodity-backed stablecoin examples like PAXG serve that purpose.
