FAQ
31 frequently asked questions about stablecoins, DeFi, payments, regulation, and building on-chain financial products.
A stablecoin is a cryptocurrency that targets a fixed exchange rate against a reference asset—usually a fiat currency like the US dollar. Stability comes from one of three mechanisms: holding reserve assets (cash, T-bills, or crypto collateral), algorithmic supply adjustments, or a combination. The result is a token you can move across blockchains in minutes, at low cost, without the price swings of BTC or ETH.
Fiat-backed stablecoins (USDC, USDT, PYUSD) hold cash or T-bills in custodial accounts and redeem 1:1. Crypto-collateralized stablecoins (DAI) lock on-chain crypto—typically at 150%+ collateral ratio—to absorb price swings. Algorithmic stablecoins use mint/burn smart contracts to target a peg without holding equivalent reserves; this design has historically been the most fragile.
Total stablecoin supply is in the hundreds of billions. USDT is the largest by a wide margin, followed by USDC. The rest—DAI, FDUSD, PYUSD, USDP, TUSD, EURC—each hold single-digit billions. Market caps shift quickly; check CoinGecko or DefiLlama stablecoin dashboards for current numbers.
USDC (Circle) is regulated under US state money transmitter licenses, holds reserves in cash and short-duration US Treasuries, and publishes monthly Deloitte attestations. It's available on Ethereum, Solana, Base, Polygon, Arbitrum, Optimism, and Avalanche. USDT (Tether) is domiciled in the British Virgin Islands with quarterly BDO Italia attestations and a broader reserve mix including commercial paper. USDT has roughly 2–3x the market cap, but USDC scores lower on risk assessments due to tighter regulatory oversight and reserve transparency.
The peg is the target exchange rate—e.g., 1 USDC = 1 USD. De-pegging happens when confidence erodes: reserve quality gets questioned, exchange liquidity dries up, collateral drops in value, or a bank run triggers mass redemptions faster than the issuer can process. Fiat-backed coins with transparent, high-quality reserves tend to hold pegs within a few basis points. Algorithmic designs have historically been more vulnerable.
USDT: Ethereum, Tron, BSC, Polygon, Solana, Arbitrum, Optimism. USDC: Ethereum, Solana, Polygon, Arbitrum, Optimism, Base, Avalanche. DAI: Ethereum, Polygon, Arbitrum, Optimism, Base. EURC: Ethereum, Polygon, Arbitrum, Base. PYUSD: Ethereum, Solana. Chain support changes frequently—check issuer documentation for the latest.
It depends on the issuer and jurisdiction. Circle (USDC, EURC) holds US state money transmitter licenses. Paxos (PYUSD, USDP) operates under a NYDFS Trust Charter. First Digital USD is licensed under Hong Kong's VASP framework. Tether and TrueUSD are domiciled in the BVI without equivalent direct oversight. The EU's MiCA regulation, effective since 2024, creates a unified framework for stablecoin issuers in Europe. The US has advanced stablecoin-specific bills but hasn't passed comprehensive federal legislation yet.
MiCA (Markets in Crypto-Assets) is the EU's regulatory framework for crypto, including stablecoins. It splits stablecoins into two buckets: e-money tokens (pegged to one fiat currency) and asset-referenced tokens (pegged to a basket). Issuers must get authorized, hold adequate reserves, meet redemption requirements, and publish transparency reports. If you're issuing or distributing stablecoins in the EU, MiCA compliance is mandatory.
Regulated stablecoin providers must run KYC identity checks on users and monitor transactions for money laundering. In practice this means screening against OFAC and other sanctions lists, enforcing the Travel Rule for transfers above thresholds, filing suspicious activity reports, and maintaining audit trails. Most providers use on-chain analytics from Chainalysis, TRM Labs, or Elliptic for real-time risk scoring.
Technically, most undergo "attestations" rather than full audits—an independent accounting firm verifies that reserves meet or exceed outstanding token supply at a point in time. USDC and EURC: monthly by Deloitte. PYUSD and USDP: monthly by Withum. USDT: quarterly by BDO Italia. DAI is different—its collateral is locked in smart contracts and verifiable on-chain in real time. TrueUSD uses continuous attestation through Armanino.
Lending protocols (Aave, Compound) pay you interest from borrowers—variable APYs, typically 2–10% depending on utilization. DEX liquidity provision (Curve, Uniswap) earns trading fees when you supply stablecoins to swap pools. Yield aggregators (Yearn, Convex) auto-route deposits across strategies. Tokenized money market funds (BlackRock BUIDL, Ondo USDY) offer T-bill yields on-chain. Higher yield generally means higher risk.
No protocol is risk-free—all carry smart contract risk. That said, Aave, Uniswap, and Compound have the strongest track records: multiple independent audits (3–6 firms each), security scores above 90/100, large TVL, and active bug bounty programs. Curve, Balancer, and Convex sit in a middle tier with more complex architectures. Cross-chain bridges like Stargate carry the highest risk due to their larger attack surface—bridge exploits have accounted for billions in DeFi losses.
Standard AMMs (like Uniswap's constant-product formula) are designed for assets with unpredictable relative prices. For stablecoins that should trade near 1:1, that's wasteful—most of the liquidity sits in price ranges that never get used. Curve's StableSwap invariant concentrates liquidity around the peg, which means dramatically less slippage on USDC/USDT or DAI/USDC trades. That's why Curve exists: it's a DEX purpose-built for like-kind asset swaps.
Smart contract exploits are the big one—audits and bug bounties reduce but don't eliminate this risk. Other risks: impermanent loss in liquidity pools, governance attacks on protocol parameters, oracle manipulation, and bridge exploits for cross-chain strategies. Regulatory risk is growing as governments examine DeFi lending. Before depositing, check the protocol's audit history, governance structure, TVL trend (declining TVL is a red flag), and whether it has an active bug bounty.
The sender converts local currency to a stablecoin through an on-ramp provider, transfers the stablecoin on-chain (settling in minutes, not days), and the recipient off-ramps to their local currency. FX conversion can happen on-chain via DEX pools or at the off-ramp. The USD-EUR corridor has the deepest on-chain liquidity today, with tight spreads (~5 bps) and settlement under 15 minutes. Thinner corridors (USD-JPY, USD-SGD) have wider spreads and less liquidity.
Similar to Stripe payment links, but settling in stablecoins. The link encodes amount, currency, recipient wallet, and optional metadata (invoice ID, order reference). In an e-commerce integration, the buyer sees a QR code or wallet-connect prompt at checkout. On L2 networks like Base, Arbitrum, or Optimism, settlement is near-instant with sub-cent gas fees.
Instead of paying in lump sums, streaming payments move value continuously—per second, minute, or hour. Protocols like Superfluid and Sablier handle this on-chain: a sender authorizes a flow rate (say, 0.001 USDC/second) and the recipient's balance ticks up in real time. Practical uses include real-time payroll for contractors, usage-based SaaS billing, royalty splits, and revenue sharing. It eliminates the float advantage of batch payments and gives recipients immediate access to earned income.
On-chain FX liquidity is concentrated in a few corridors. USD-EUR is the deepest (~$45M daily volume, ~5 bps spread). USD-GBP and EUR-GBP are moderate (~$10–12M volume, 8–10 bps). USD-JPY, USD-CAD, USD-SGD, and USD-AUD have thinner liquidity with wider spreads (12–18 bps) and longer effective settlement times. Liquidity is served primarily by Curve, Uniswap, and Stargate pools. These numbers shift with market conditions.
At minimum: an ERC-20 token contract with mint/burn authority, access controls defining who can mint, and a pause mechanism for emergencies. Beyond that, the architecture branches by type. Fiat-backed designs add a collateral manager for deposit/withdrawal flows and reserve proof integrations. Crypto-collateralized designs need a price oracle, collateral ratio enforcement, and liquidation logic. Optional modules include transfer fees, governance (DAO-based parameter changes), and admin controls for upgrades.
A drag-and-drop interface for designing stablecoin smart contract architecture. You connect modular nodes—token core, collateral manager, price oracle, minting rules, burning rules, fee logic, governance, pause controls—into a visual graph, which then compiles to Solidity. The point is to separate architecture decisions from implementation: product teams can model token economics and test structures before writing or auditing code.
Three stages. First, in-browser EVM simulation: run compiled Solidity against a local EVM to test mint, burn, transfer, and edge cases at zero cost. Second, testnet deployment: deploy to Base Sepolia or another testnet with a real wallet to validate gas costs, contract verification, and network behavior. Third, mainnet fork testing: use Hardhat's forking mode to simulate against real mainnet state—existing liquidity pools, live oracle prices, actual token balances—without risking real funds.
Start with automated analysis (Slither, Mythril) to catch common patterns. Then get at least two independent manual audits from reputable firms—OpenZeppelin, Trail of Bits, Consensys Diligence, Certora, ChainSecurity, Quantstamp are the most established. Formal verification of critical paths (minting, burning, access control) adds another layer. Economic modeling should stress-test collateral ratios and depeg scenarios. Finally, launch a bug bounty (Immunefi is the standard platform). Expect the full cycle to take 3–6 months.
Managing organizational cash reserves in stablecoins using smart contracts and policy engines. This covers mint/burn workflows with ledger tracking, reserve allocation across asset types (T-bills, cash, MMFs), yield strategies with automated sweeps, proof-of-reserve generation, and stress testing for mass redemptions. DAOs and fintechs typically use multi-sig tools like Safe paired with allocation platforms like Coinshift or Karpatkey.
Traditional MMF shares represented as on-chain tokens. You get cash-like yield (currently 4–5% from US Treasury exposure) with T+0 settlement instead of T+1 or T+2. BlackRock's BUIDL (Ethereum, via Securitize), Franklin Templeton's BENJI (Stellar and Polygon), and Ondo's USDY are the notable examples. Corporate treasuries and DAOs increasingly use these as a yield-bearing alternative to idle stablecoin balances.
Same concept as a traditional corporate sweep account, but on-chain. When a stablecoin balance exceeds a configured threshold, the surplus gets routed to pre-approved yield sources—lending protocols, T-bill vaults, or money market funds. When the balance drops below a floor, funds sweep back. Rules are programmable, settlement is real-time, and yield attribution is transparent.
Policy-as-Code engines encode sanctions screening, Travel Rule checks, and velocity limits into programmable rules. Synthetic AML data generators let you test monitoring systems without real customer data. Automated reporting tools handle SAR filing and audit packages. Embedded wallet SDKs from Onfido, Persona, or Trulioo add KYC at the wallet level. On-chain analytics from Chainalysis, TRM Labs, or Elliptic provide real-time transaction scoring.
FATF Recommendation 16 requires financial institutions to share sender and receiver identity data for transfers above certain thresholds ($3,000 in the US, €1,000 in the EU). For stablecoins, this means VASPs must transmit originator and beneficiary information alongside the on-chain transaction via VASP-to-VASP messaging protocols. Non-compliance risks regulatory action and loss of banking relationships.
Real-World Asset (RWA) tokens represent off-chain assets—US Treasuries, corporate bonds, real estate—as on-chain tokens. They extend the stablecoin idea from currency pegs to yield-bearing instruments. Ondo Finance, Backed, and Superstate are leading issuers. RWA tokens are increasingly paired with stablecoins in treasury strategies: stablecoins handle liquidity and payments, RWA tokens generate yield on idle balances.
NGOs use programmable stablecoin wallets for direct cash transfers to beneficiaries. Recipients enroll with KYC verification, then receive disbursements that can be geofenced, conditional on verified needs, or released on a schedule. On-chain tracking gives donors full transparency into fund flows. UNICEF CryptoFund, WFP Building Blocks, and GiveDirectly are the most active organizations in this space.
A Central Bank Digital Currency is digital sovereign money issued by a central bank—a direct liability of the state with zero credit risk. Stablecoins are issued by private companies, run on permissionless blockchains, and carry counterparty risk tied to the issuer's reserves. CBDCs may run on permissioned networks and integrate directly with monetary policy. Over 100 jurisdictions are exploring or piloting CBDCs. The two will likely coexist, with bridge infrastructure connecting them.
Financial products designed around Islamic finance principles, which prohibit interest (riba) and excessive speculation (gharar). In stablecoin terms, this means savings accounts using profit-sharing or commodity-backed yield models instead of interest, Murabaha (cost-plus) trade financing settled in stablecoins, tokenized Waqf endowment accounts, and automated Zakat calculation and disbursement. Marhaba DeFi, Zoya, and Fasset are active builders in this space.
