Stablecoins: Meaning, Types, Benefits And Risks

Key takeaways 
 

• Stablecoins are a type of cryptocurrency, but the difference is that cryptocurrencies fluctuate, and stablecoins are stable cryptocurrencies.
   
• You can use stablecoins in trade. It helps increase reserves of dollars and gold. 
   
• In stablecoins, the value does not fluctuate, so the chances of loss are less. 
   
• The US Senate passed the Genius Act on June 17, 2025. This Act supports the stablecoins of the USA. 
   
• Stablecoin stocks are shares of companies involved in creating or managing stable digital currencies.

If you have ever visited a crypto exchange website or mobile app, you may have seen cryptos like BTC or USDT. If someone wants to purchase crypto, they must buy a stablecoin on this exchange, and then they can purchase crypto. In this way, stablecoins act better than real-world currency and cryptocurrency. 

People purchase cryptocurrency, but don't they use it in real life? The answer is no. The reason is that the value of cryptocurrency isn't stable. In only a few hours, it can surge or fall. So if you buy or purchase with cryptocurrency in real time, you may face a loss. 

Cryptocurrency investors also have to face this problem. When the market is not working properly, then the traders on exchanges also don't have any option. Because selling crypto in a falling market becomes a hectic task, in this situation, stablecoins come into the picture.

For example 

Suppose you bought chocolates worth 1000 from a shop, and you shopped via crypto. After 2 hours, the price of crypto shifted to 400. Now you will think I should have waited for 2 hours. 

On the other hand, the seller was happy because if he had sold after 2 hours, he might have faced a loss of 600. 

To avoid this situation, someone created a token on the blockchain and tied it to a dollar. Means the value of 1 token = 1 dollar.

What are stablecoins?

The Tokens are made on crypto’s Blockchain with the help of a smart contract or software program known as stablecoins. Stablecoins don't have their own Blockchain. It is a utility token made on another blockchain. These stablecoins are used to buy other cryptos because you can convert stablecoins to INR or dollars later. 

Bonus tip - Finance minister Nirmala Sitaram paused the crypto policy paper (March 31). Prefers CBDC over stablecoins due to RBI risks; 30% VDA tax, 1% TDS, and FIU-AML rules continue.

Types of stablecoins 

Stablecoins are not pegged with fiat currencies like the dollar or the euro; they can also be linked to gold, oil, etc. 
 

These types are different based on values like money, assets, crypto, or system rules.

Why can't I use dollars directly?

Currencies like the EURO, dollar, and Yuan are centralised, which means they are under the control of the government. When someone wants to send or receive money from one country to another, they have to use the SWIFT code. During holidays, payments reached late at the international level, and banks charge transaction fees and conversion fees.

Cryptocurrency is on the internet. There is no government control over it. So you can trade with it anywhere around the world, even on holiday. It only has a transaction fee, which is lower than the bank charges. Stablecoins are also used to transfer funds easily across the exchange. 

Stablecoins vs Bitcoin 

Stablecoins and Bitcoins play very different roles. 

Stablecoins are great for payments since they stay stable and work fast, while Bitcoin is more like an investment. 

Genius act, stablecoin

To regulate these stablecoins, the U.S. Senate introduced the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act on February 4, 2025.  According to it, private companies in America can introduce such stablecoins, but the condition is that they have to allow dollars to be pegged. Trump’s stablecoin may affect crypto rules and digital money in the future.

E-Commerce websites like Amazon and Walmart try to find such new ways so that they can offer coins, rewards, and coupons to their customers. Now they have got legal permission for this activity. Here, the risk of money laundering is clear. Anyone with black money can convert money into stablecoins and then use them. 

To control it, there is an anti-money laundering provision in the Genius Act stablecoin. It means KYC is compulsory for the transaction, and if there is a sudden massive transaction, it has to be reported. 

Also, there will be a monthly audit. Authorities have the power to freeze or track tokens. In short, a genuine act is setting global standards.

Opportunities for genius act 

India is one of the largest remittance-receiving countries. In 2024, it was 130 Arab dollars.  

• 3-7% of tax is levied on money that comes to India. That means, yearly, 3.7 arab dollar to 8.6 arab dollar waste in fees. Stablecoins can reduce this spending up to 90%. 
• Money can be transferred in minutes instead of days. 
• In 2024, the transaction through stablecoins reached 27.6 trillion dollars on the global market. 

It is much more than the total volume of Visa and MasterCard.

Conclusion 

Cryptocurrency is volatile, but stablecoins do not fluctuate like Cryptocurrency. According to the Genius Act, stablecoins are now pegged to the dollar. Stablecoins have become very important in the crypto world. This change in the crypto world offered a great opportunity for India. We can grab it.

FAQs 

Explain like I'm five: What is the point of stablecoins?

If you have 100 chocolates today, it will still be 100 tomorrow. 

Can someone help me understand the purpose of a stablecoin?

People use stablecoin to send money, keep money safe, and buy and sell crypto.

What is the risk of stablecoins?

There is a risk that stablecoins like companies holding the money might fail, sometimes they don't have enough real money. And the government can change rules anytime. 

What is the point of investing in "stable" cryptos like USDC or USDT?

It keeps money stable, safe, and gives interest.