Stablecoins explained: USDT, USDC and the GENIUS Act

A stablecoin is a crypto token designed to keep a steady value, almost always one US dollar. Stablecoins are the plumbing of the crypto market: traders use them to move between coins, apps use them for payments, and people abroad use them to hold dollars.

How they stay at $1

• Reserve-backed stablecoins, such as USDC and USDT, are issued by a company that holds cash, short-term Treasury bills and similar assets in reserve. Large holders can redeem tokens for dollars with the issuer, which keeps the market price close to $1.
• Crypto-backed stablecoins, such as DAI, are backed by other crypto locked in smart contracts, with more collateral than the stablecoins issued to absorb price drops.
• Algorithmic stablecoins try to hold their price with supply rules alone. The best-known, TerraUSD, collapsed in 2022 and wiped out tens of billions of dollars. Treat this design with great caution.

The risks

• Issuer risk: you depend on the issuer actually holding the reserves and honoring redemptions.
• De-pegging: in a panic, a stablecoin can trade below $1. USDC briefly fell to about $0.88 in March 2023 when one of its banks failed, before recovering.
• No deposit insurance: stablecoins aren't bank deposits and aren't FDIC insured.
• Platform risk: holding stablecoins on an exchange adds that exchange's risk.

The GENIUS Act

Congress passed the first federal stablecoin law, the GENIUS Act, which was signed on July 18, 2025. Its main rules for "payment stablecoins" issued to US users:

• Reserves must back tokens one-for-one with cash, short-term Treasuries and similar high-quality assets.
• Issuers must be licensed and supervised, at the federal or state level.
• Issuers can't pay interest to holders.
• Regular public disclosure of reserves is required.

The law takes effect 18 months after it was signed (around January 2027) or 120 days after regulators finish their rules, whichever comes first. Until then, protections depend on each issuer and its existing state licenses.

Stablecoin "yield"

Some platforms advertise rewards of several percent on stablecoin balances. That money comes from lending or other activity by the platform, not from the stablecoin itself, and it carries the platform's risk. Under the GENIUS Act, issuers themselves can't pay interest; whether platforms can keep offering rewards was one of the disputed points in the stalled market-structure bill.

Taxes

Swapping a stablecoin for another coin is a taxable trade, like any coin-to-coin trade. Because stablecoins stay near $1, gains and losses are usually tiny, but they still need to be reported. Rewards earned on stablecoins are ordinary income.