Stablecoins explained: how they work and what the new 2026 rules mean

If you've traded on a decentralized exchange, you've almost certainly used a stablecoin. USDC, USDT and similar tokens are the default trading pair, the place traders park value between trades, and the simplest way to move dollars across chains.

Total stablecoin supply crossed $310 billion in mid-2026, up from roughly $124 billion at the end of 2023 (Spark, June 2026). And the US rules for issuers have just been finalised: the OCC filed its final rule on 22 October 2026, for publication in the Federal Register the next day. It's a good moment to understand what a stablecoin actually is.

What is a stablecoin?

A stablecoin is a token designed to keep a steady value, usually $1. It lives on a blockchain like any other token, so it can be held in a self-custody wallet, swapped on a DEX, or sent across the world in minutes.

The interesting question is how it stays at $1. That depends on the type.

The main types of stablecoins

• Fiat-backed. Each token is backed by cash and short-term government debt held by an issuer. USDT and USDC are the largest examples, at roughly 61% and 25% of supply respectively (Spark, June 2026). You trust the issuer to hold the reserves and honour redemptions.
• Crypto-backed. Tokens are minted against crypto collateral locked in smart contracts, typically worth more than the stablecoins issued (“over-collateralised”). DAI, now alongside USDS from Sky, is the best-known example. You trust the code and the collateral rules rather than a bank account.
• Synthetic or strategy-backed. These use trading strategies, such as holding crypto while shorting it on derivatives markets, to offset price moves. Ethena's USDe is an example. Returns can be attractive, but they depend on market conditions such as funding rates.
• Commodity-backed. Some tokens track a physical asset instead of a currency, such as gold-backed tokens. They're stable relative to the commodity, not to the dollar.

How does a stablecoin hold its peg?

Mostly through redemption and arbitrage. If a fiat-backed stablecoin trades at $0.99 on a DEX, approved traders can buy it cheaply and redeem it with the issuer for $1, pushing the price back up. If it trades at $1.01, they mint new tokens for $1 and sell them. That constant buying and selling keeps the price close to $1.

Crypto-backed designs use similar incentives, plus automatic liquidations if collateral falls too far in value.

What the new rules mean

United States — the GENIUS Act. Signed in July 2025, it is the first federal framework for “payment stablecoins.” The OCC's final rule covers reserves, redemptions, capital, audits and custody. It was filed for public inspection on 22 October 2026 and publishes on 23 October. Key points:

• Reserves must be high-quality assets such as cash, insured deposits and short-dated Treasuries.
• Issuers can't pay interest just for holding their stablecoin.
• The rule takes effect on 18 January 2027, the same date the GENIUS Act itself becomes effective, and from then issuers generally need approval before issuing in the US.

European Union — MiCA. The EU's rules for stablecoins (called e-money tokens and asset-referenced tokens) have applied since mid-2024. Issuers need authorisation and must hold reserves with supervised credit institutions.

For users, the direction is clear: more transparency about what backs the token, and clearer rights to redeem.

How stablecoins are used in DeFi

• Trading pairs: most DEX liquidity is priced against stablecoins.
• Parking value: traders move into stablecoins to step out of market swings without leaving the chain.
• Moving across chains: major stablecoins exist on Ethereum, Base, Arbitrum, Optimism and more.
• Lending and liquidity: stablecoins are widely supplied to lending markets and liquidity pools.

What to check before you hold one

• Who issues it, and what backs it? Look for regular reserve reports or on-chain collateral data.
• Is it the native version on this chain? Some chains have both a native and a bridged version of the same stablecoin (for example USDC and USDC.e). They can trade at slightly different prices.
• How deep is its liquidity? Larger stablecoins are easier to swap with low price impact.
• Where does any yield come from? If a stablecoin or product pays a return, understand the source.

The bottom line

Stablecoins are the everyday money of DeFi. Knowing which type you hold, and what keeps it at $1, is one of the most useful things a DeFi user can learn. With new rules arriving in the US and already in force in the EU, that information is becoming easier to find.

Sources: OCC, final rule implementing the GENIUS Act, filed 22 October 2026 and publishing 23 October; Spark, stablecoin supply research, June 2026.

Disclaimer: These materials are for general information purposes only and do not constitute financial, investment, tax, or legal advice, nor a recommendation or solicitation to buy, sell, stake, or hold any crypto-asset. LCX Liberty Labs will not undertake efforts to increase the value of any crypto-asset that you buy. Crypto-assets are highly volatile and you may lose your entire investment. Past performance is not indicative of future results. Some crypto products and markets are unregulated, and you may not be protected by government compensation or regulatory protection schemes.