Glossary · Settlement

Stablecoin

Also: stablecoins, fiat-backed stablecoin

Published

Stablecoin — A stablecoin is a digital asset designed to hold a stable value relative to a reference currency, most commonly the U.S. dollar, typically by backing each unit with reserves of cash and short-term government securities held by the issuer and redeemable at par. Institutions use fiat-backed stablecoins as a 24/7 settlement currency.

How Fiat-Backed Stablecoins Work

The issuer holds reserves and issues tokens against them one for one. Holders can redeem tokens for fiat with the issuer, and that redemption right anchors the market price near par. The quality, liquidity, and transparency of the reserves, and the legal framework the issuer operates under, determine how reliable the peg is. In the United States, the GENIUS Act of 2025 established a federal framework for payment stablecoin issuers, including reserve requirements.

Why Institutions Settle in Stablecoins

A stablecoin moves on a blockchain, so it settles in minutes, at any hour, across borders, with finality that does not depend on banking days. For a market that trades 24/7, that makes it the natural cash leg for digital asset trades and a practical instrument for treasury payments outside banking hours. Settlement networks that operate in stablecoins can sequence the asset and cash legs closely enough to approximate delivery versus payment.

What to Evaluate

Institutions evaluate a stablecoin on the issuer's reserve composition and attestations, redemption terms, regulatory status, blockchain support, and the depth of on/off-ramp liquidity between the stablecoin and fiat.

Sources

  1. S.1582, GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act), 119th Congress — U.S. Congress, 2025
  • On/Off-Ramp

    On/off-ramping is the conversion between fiat currency and digital assets, most often stablecoins, through a provider that accepts fiat by bank transfer and delivers the digital asset, or receives the digital asset and pays out fiat. For payment networks and treasuries it is the bridge between banking rails and blockchain settlement.

  • Settlement Risk

    Settlement risk is the risk that one party to a trade delivers its side, the asset or the cash, and the other party fails to deliver, leaving the first party exposed for the full value of what it sent. It arises whenever the two legs of a trade do not move at the same time or under the same control.

  • Delivery Versus Payment (DvP)

    Delivery versus payment (DvP) is a settlement arrangement in which the transfer of an asset happens only if the corresponding payment happens, and vice versa, so that neither party is exposed to the loss of principal if the other fails to deliver. In digital assets it is implemented through escrow, atomic on-chain transfers, or a settlement agent.

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