What stablecoins are (and what they are not)

You have heard the word “stablecoin” and never felt like looking up what it means. Let’s do it now, without jargon and without selling you anything.

A stablecoin is not Bitcoin

A stablecoin is a digital token designed to keep a steady value, usually one US dollar, that moves on a blockchain. That is the definition. The rest is detail.

Confusing it with Bitcoin keeps more people away than anything else, so let’s clear that up first. Bitcoin changes value every second; a stablecoin is built to stay at one dollar. “Built to” is not “always manages to”: further down you will see what happens when it fails. The two share a technology, blockchains, and nothing else. One is free to rise and fall, the other aims not to move.

Price at 00:00 UTC	Bitcoin	USDC, a stablecoin
1 January 2026	$87,600	$0.999
1 April 2026	$68,100	$1.000
1 July 2026	$58,600	$0.999
1 October 2026	$83,600	$1.000
Lowest and highest, 9 October 2025 to 8 October 2026	$58,600 – $123,300	$0.999 – $1.002

Source: CoinGecko daily prices in US dollars, October 2026.

They stay still because someone holds the real money

A serious issuer takes your money and sets it aside. If 100 million dollars of stablecoins are in circulation, 100 million real dollars must sit somewhere, usually in short-term US government debt and in bank accounts. Every token is the receipt for one parked dollar. It is more boring than crypto marketing wants you to believe, and that is precisely the point.

So the right question about a stablecoin is not “how much does it pay”. It is: who holds the real money, where, and who checks. Here is the answer for USDC, the second-largest stablecoin:

USDC reserves on 31 August 2026	Amount	Share
Overnight loans to financial institutions, backed by US Treasuries (repo)	$49.6 billion	67.6%
US Treasury bills	$13.2 billion	18.0%
Cash	$10.6 billion	14.4%
Total reserves	$73.4 billion	100%
USDC in circulation	$73.3 billion

Source: Circle, USDC Reserve Report examined by independent accountants, August 2026.

The stablecoins that collapsed from 2022 onwards collapsed right there: the money was not set aside.

Visa, Stripe and PayPal already use them

In early October 2026 about $314 billion in stablecoins is in circulation: more than a year earlier ($304 billion), but about 3% below the peak of May 2026. This is not a line that only goes up. 99.5% of it is in dollars, and two issuers, Tether and Circle, issue about 82% of the total. If you think in euros, almost every stablecoin exposes you to the dollar, not the euro.

It is not only enthusiasts. Visa settles with some banks in USDC, and in July 2026 it introduced a stablecoin platform for banks and fintechs. Stripe bought the stablecoin company Bridge in February 2025. PayPal offers PYUSD, a dollar stablecoin issued by Paxos. In June 2026 more than 140 companies, Visa, Mastercard, American Express, U.S. Bank and Coinbase among them, backed a shared dollar stablecoin, Open USD.

None of this makes them safe. It only means the train has already left, and it is worth knowing what it is before your bank explains it to you.

The three risks to know first

First: whoever holds the real money can get into trouble. In March 2023 USDC fell below 88 cents. It was not a scam: $3.3 billion of its reserves, about 8%, sat at Silicon Valley Bank, which failed on 10 March. Circle said it would cover any shortfall, US authorities said all the bank’s depositors would be made whole, and within about three days USDC was back at one dollar. It ended well, but for three days nobody knew how it would end.

USDC, March 2023 (UTC)	Lowest hourly price	Last hourly price of the day
Friday 10	$0.992	$0.994
Saturday 11	$0.878	$0.950
Sunday 12	$0.942	$0.993
Monday 13	$0.980	$0.999
Tuesday 14	$0.997	$1.000

Source: CoinGecko hourly prices via DefiLlama, March 2023.

Second: not all of them have the money set aside. Some try to stay still with algorithmic mechanisms instead of real reserves. One of them, TerraUSD, collapsed in May 2022 and wiped out almost all of what people had put into it. If a stablecoin cannot show you where the money is, the answer is that it is not there.

Third, the one nobody talks about: there is no deposit guarantee scheme. In the EU, money in a bank is covered to a limit of €100,000 per depositor and per bank (in Italy, by the FITD). A stablecoin has no such cover. The risk is different, and whoever presents the two as equivalent is telling you the story badly.

How to recognise a serious stablecoin

Three questions, in order.

Are the reserves public and checked by a third party? Serious issuers publish a periodic reserve report, examined by independent accountants. If you cannot find it on their site in thirty seconds, you already have your answer.
What are the reserves invested in? Short-term government debt and cash are the boring, correct answer. If exotic assets show up, the risk is no longer the one you thought you were taking.
Is it regulated where you live? In the EU, the MiCA regulation has applied to stablecoins since 30 June 2024. A stablecoin tied to one currency is an e-money token: its issuer must be authorised as a bank or an electronic money institution, keep at least 30% of the money in separate bank accounts and invest the rest in secure, liquid assets. In October 2026 the public ESMA register lists 25 such issuers, Circle among them. That is a concrete filter.

On its own, a stablecoin pays nothing

It sits still. That is its job.

What pays is what you do with it: lend it, deposit it in a protocol, leave it with someone who puts it to work. There the risk changes nature: it is no longer only the issuer’s risk, it is also the risk of whoever uses it on your behalf.

That part deserves a separate piece: start with What is Morpho Protocol and how DeFi vaults work. The short answers are below.

Where does the yield on stablecoin savings come from?

From borrowers. Stablecoins placed in a lending market are lent to people who pledge collateral worth more than the loan, and who pay interest on it. That interest, minus fees, is the yield. Supply and demand in the market set the rate, so it is variable and can go down.

In unflat, money in Savings goes to Morpho lending vaults run by third-party curators, today Steakhouse Financial and Gauntlet. The lending market sets the rate, not unflat.

Is a high stablecoin yield sustainable?

Only if borrowers really pay it. A yield from over-collateralised loans moves with the demand for borrowing: it rises when many want to borrow and falls when few do. A yield that stays high whatever the market does is usually paid from somewhere else, such as the reserves of the project itself, and that cannot last.

The best-known case is Anchor, the lending protocol behind TerraUSD. It paid nearly 20% a year and was a major reason the stablecoin grew. In May 2022 a wave of withdrawals from Anchor set off a run: TerraUSD lost its peg, and in one week the money in Anchor fell from €16 billion to €269 million, according to ESMA.

What are the risks of earning a yield on stablecoins?

The risks of the stablecoin stay, and new ones are added: bugs in the smart contracts; losses in a lending market if collateral crashes before loans are closed; the choices of the curator who runs the vault; and, if you think in euros, the euro-dollar exchange rate. None of these is covered by a deposit guarantee scheme.

The EU supervisors (EBA, EIOPA and ESMA) also point out that MiCA offers no compensation scheme like those of traditional financial products. In unflat, Savings are held in USDC, so their value in euros moves with the exchange rate.

This guide is written by unflat. unflat is non-custodial software made by unflat S.r.l., not a bank. Funds deposited through unflat are not covered by deposit guarantee schemes (FITD or equivalent) and are subject to risk, including loss of principal. Never deposit money you cannot afford to lose. This is informational material and does not constitute financial advice.