A stablecoin is a crypto token designed to keep a steady value, usually one US dollar. This article explains how the main types work, what the difference is between native and bridged USDC, and why sending a stablecoin costs more than sending the chain's own coin.
What a stablecoin is for
Coins such as ETH and BTC can change a lot in value from one day to the next. That makes them awkward for payments, salaries or savings you want to keep in a fixed unit. A stablecoin tries to solve this by tracking a reference value, most often the US dollar.
People use stablecoins to send money across borders, to hold a dollar value inside a wallet, and to trade or pay in apps without leaving the blockchain. The most widely used ones are USDC and USDT, both pegged to the dollar.
Fiat-backed stablecoins
A fiat-backed stablecoin is issued by a company that says it holds reserves, such as cash and short-term government bonds, in an amount that matches the tokens in circulation. When you hand the issuer one dollar, it creates one token. When you return one token, it gives you a dollar and destroys the token.
USDC and USDT are the best-known examples. Their stability relies on trust in the issuer: that the reserves exist, are of good quality, and can be redeemed. Issuers publish reports about reserves, and the quality of these reports differs between issuers. Issuers can also freeze tokens at specific addresses, for example under legal orders. That is a feature of the design that you should know about.
Crypto-backed stablecoins
A crypto-backed stablecoin is secured by other crypto locked in smart contracts. Because crypto prices swing, these systems are over-collateralized: you lock more value than you borrow. For example, you might lock the equivalent of 150 dollars in ETH to mint 100 stablecoins. If the collateral value falls too far, the contract sells it automatically to cover the debt.
The advantage is that no single company holds the reserve, and the rules live in open code. The trade-offs are complexity, the need to lock extra capital, and the risk that the code has bugs or that collateral falls faster than it can be sold.
Algorithmic stablecoins
An algorithmic stablecoin tries to hold its peg mainly through code and incentives rather than through full reserves. A typical design pairs the stablecoin with a second, volatile token. The system mints or burns one to keep the price near one dollar.
This model has a mixed record. Several designs lost their peg, and in one widely known case in 2022 a large algorithmic stablecoin collapsed, wiping out a large amount of value for holders. The common weakness is a feedback loop: when confidence falls, the price drops, the mechanism creates more of the volatile token, that token falls too, and the peg breaks. Not all algorithmic ideas are the same, and research continues, but the history is a reason to read how any such coin really holds its price before using it.
| Type | What backs it | Main risk |
|---|---|---|
| Fiat-backed | Cash and bonds held by an issuer | Issuer trust, freezes |
| Crypto-backed | Locked crypto, over-collateralized | Code bugs, sharp price drops |
| Algorithmic | Incentives and code | Loss of confidence, loss of peg |
Stablecoins are tokens
A stablecoin is not the native coin of a blockchain. It is a token, a balance managed by a smart contract on that chain.
- On Ethereum, Arbitrum, Base, Optimism and Polygon, tokens usually follow the ERC-20 standard. The contract stores a list of who owns how many units.
- On Solana, tokens follow the SPL token standard.
Bitcoin does not support tokens like this on its base layer.
The same stablecoin can exist on several chains as separate token contracts. "USDC on Base" and "USDC on Ethereum" are different contracts on different ledgers. When you send USDC, check which chain you are on. See wallets and keys for the risk of choosing the wrong network.
Native vs bridged USDC
This detail trips up many users. On some chains, there are two kinds of "USDC".
- Native USDC is issued directly on that chain by the issuer, Circle. You can redeem it with the issuer.
- Bridged USDC is a copy created when someone locked USDC on another chain and a bridge minted a wrapped version. Its value depends on the bridge being safe and having the locked funds.
On Polygon and Arbitrum, for example, the older bridged version is often shown as USDC.e, while native USDC has the plain name. Apps may accept one but not the other, and liquidity can differ. Always check the token's contract address in your wallet or on the block explorer, and which version your destination expects.
For more on how bridging works and why it carries risk, read bridges and their risks.
Why sending a token costs more gas than sending the coin
Sending the chain's own coin, such as ETH, is a simple balance change. The network does it directly.
Sending a token such as USDC calls a function in the token's smart contract. The contract must read and update the stored balances of both the sender and receiver, which takes more computation and storage. More work means more gas. On Ethereum, a basic ETH transfer uses 21,000 gas, while a token transfer typically uses noticeably more.
On Solana, the same idea applies: a token transfer touches token accounts and costs more compute units than a plain transfer. If the receiver does not yet have a token account for that token, creating one adds a small extra cost.
To see today's numbers for each chain, open the gas tracker. It compares sending the coin, sending a token like USDC, and a swap at economy, normal and fast speeds. For tips on picking a chain, read the cheapest way to send USDC, and for the background on fees, gas and fees.
Frequently asked questions
What is the safest stablecoin?
No stablecoin is risk-free. Fiat-backed coins depend on the issuer and its reserves, and crypto-backed ones depend on code. Read about how each coin is backed and what happens when you redeem it, and avoid keeping more than you need in any single asset.
What is the difference between USDC and USDT?
Both are fiat-backed dollar stablecoins from different issuers: Circle issues USDC and Tether issues USDT. They differ in the reserves they report, the chains they run on and where they are accepted.
What is USDC.e?
USDC.e is a bridged version of USDC found on some chains, such as Polygon and Arbitrum. It was created through a bridge rather than issued natively by Circle on that chain, and many apps now prefer native USDC.
Why did some algorithmic stablecoins fail?
They depended on confidence and on a paired volatile token. When trust fell, the mechanism pushed the paired token down too, creating a spiral that broke the peg. Fully reserved designs avoid this particular risk but have other ones.
Why does sending USDC cost more than sending ETH?
USDC is a token managed by a smart contract. A transfer runs contract code and updates stored balances, which uses more gas than a simple coin transfer.