The crypto market has split into distinct types. One fluctuates with the market by design: tokens such as Bitcoin and Ether, which move on momentum, belief, and speculation. The other is deliberately steady: stablecoins, digital tokens pegged to other fiat assets that behave more like cash than an investment. Together, they form the infrastructure of modern digital finance. Both are driving innovation, but one is making it more usable.
In 2024, stablecoin transfer volumes exceeded $18 trillion, surpassing both Visa and Mastercard. Stablecoins have become the workhorse of blockchain commerce, powering trading, payments, and entire financial systems that run around the clock. Below, you’ll find a clear look at how stablecoins and cryptocurrencies differ—how each works, what risks and benefits they carry, and when to use one over the other.
What’s in this article?
- What are stablecoins?
- How do stablecoins work?
- What are cryptocurrencies?
- How are stablecoins different from other cryptocurrencies?
- How are stablecoins used in real-world transactions?
- What are the benefits of using stablecoins compared to cryptocurrencies?
- What are the risks of using stablecoins and cryptocurrencies?
- How to choose between stablecoins and cryptocurrencies?
What are stablecoins?
Stablecoins are digital tokens engineered to hold a steady price, typically pegged 1:1 to a reference asset such as the US dollar or the euro. The goal is to make value on a blockchain behave like familiar money while keeping crypto’s advantages—24/7 settlement, global reach, and programmability.
There are four main types of stablecoins:
- Fiat-reserve: Each token is backed by an equivalent amount of fiat currency or other liquid assets held by a regulated issuer. Holders can redeem one token for one dollar. The issuer mints, buys, and sells coins to keep the market price near the peg.
- Crypto-collateralized: These are backed by volatile crypto assets locked in smart contracts. To manage that volatility, they’re over-collateralized (e.g., $150 backing for $100 issued) and liquidated if collateral falls.
- Commodity-backed: Each token represents a claim on a tangible asset (commonly gold). Custodians hold and audit the reserves off-chain.
- Algorithmic: These use supply-and-demand algorithms to keep prices stable without collateral. They’re capital-efficient, but historically fragile under stress.
How do stablecoins work?
Stablecoins maintain their value through a mix of collateral, redemption, and arbitrage: systems that keep each token anchored to its peg.
Here’s how it works.
Collateralization
Stablecoins are typically backed by assets equal to or greater than their circulating supply, with the exception of algorithmic coins. Fiat-backed coins hold cash or short-term treasuries for every token issued, crypto-collateralized coins lock volatile assets in smart contracts at high collateral ratios, and commodity-backed coins hold an equivalent amount of physical assets such as gold in reserve.
Redemption
Holders can redeem stablecoins directly for their underlying asset. This redemption floor enforces the lower boundary of the peg.
Arbitrage
When price strays from parity, traders close the gap: minting and selling when it’s high, and buying and redeeming when it’s low. This creates a self-correcting loop to maintain peg value.
Together, these feedback mechanisms deliver fiat-like price stability on blockchain networks.
What are cryptocurrencies?
Cryptocurrencies are digital assets that operate without central control and rely on blockchain networks to record and verify transactions. Each transaction is validated by a distributed network of computers, which removes the need for intermediaries.
Bitcoin introduced this model in 2009 as a peer-to-peer electronic cash system. It was later expanded on with programmable smart contracts that power decentralized finance (DeFi), non-fungible tokens (NFTs), and more. “Cryptocurrency” is a broad category of digital assets that includes both stablecoins and coins that aren’t pegged to any asset.
How are stablecoins different from other cryptocurrencies?
Stablecoins and other cryptocurrencies share the same blockchain infrastructure, but they serve different economic roles. The contrast shows up in value behavior, purpose, and oversight.
Price behavior
Traditional cryptocurrencies such as Bitcoin and Ether are free-floating assets: their prices move entirely on market sentiment and scarcity. That openness is both the appeal and the risk: they can rise or fall dramatically within hours.
Stablecoins, by design, suppress that volatility. Each token is meant to hold a predictable value, often pegged to the US dollar. This makes stablecoins a valuable asset for anyone who needs reliability on-chain. Exchanges use them to settle trades, DeFi protocols use them as base liquidity, and businesses use them for predictable payments.
Functional role
Think of traditional crypto as infrastructure and investment: the networks, fuel, or speculative asset layer. Stablecoins function as the medium of exchange that moves across those networks. They let traders exit volatile positions instantly without off-ramping to cash, enable global payrolls in digital dollars, and make it possible to quote prices in stable units across thousands of decentralized markets.
Market and regulatory treatment
Because stablecoins interface directly with the traditional financial system, regulators treat them like financial instruments that require audited reserves and clear redemption rights. Other cryptocurrencies fall under a shifting mix of securities, commodities, and tax rules.
Cryptocurrencies create decentralized networks, while stablecoins make those networks practical for real-world finance.
How are stablecoins used in real-world transactions?
Stablecoins have become the main player in digital-asset transactions, connecting crypto markets and the traditional financial system.
Here’s how they’re being used today.
Trading and market settlement
More than two-thirds of all cryptocurrency transaction value recorded in 2024 was denominated in stablecoins. Traders use them to park value between positions without exiting to fiat, which keeps liquidity circulating on-chain and allows 24/7 market operation. That’s something conventional infrastructure can’t match.
Payments and cross-border transfers
Stablecoins cut settlement time for international transactions from days to minutes, and transfers on major blockchains often cost pennies. That makes stablecoins a popular pick for global payroll, supplier payments, and real-time remittances that previously depended on slow, expensive intermediaries. Working with a provider such as Bridge for 24/7 cross-border payments allows businesses to quickly add stablecoins to their financial flows and connect to hard-to-reach markets.
Treasury and payroll
Many businesses now treat stablecoins as digital working capital. They hold reserves in dollar-pegged tokens for fast deployment or for compensating global teams in multiple currencies.
Everyday usage
In markets facing inflation or capital controls, individuals hold stablecoins as a safer store of value than local currency. People in countries such as Argentina and Brazil can keep USD-pegged stablecoins that aren’t affected by local inflation, then convert them into pesos or reais when needed.
What are the benefits of using stablecoins compared to cryptocurrencies?
Stablecoins deliver many of crypto’s advantages while sidestepping its biggest obstacle: volatility.
Here’s what stablecoins deliver that other cryptocurrencies can’t.
Predictable value
Traditional cryptocurrencies swing in price. Stablecoins are engineered to hold a consistent value, which makes them suitable for payments, accounting, and contracts where stability matters. That reliability is what allows them to function like actual money rather than speculative assets.
Ease of adoption
Using a stablecoin feels familiar for businesses. You can price goods in dollars, settle instantly, and skip the banking delays. Global companies use stablecoins to pay remote teams and vendors in minutes, at a fraction of wire-transfer costs. Fintech platforms integrate them to give customers dollar exposure without holding bank deposits.
Liquidity and flexibility
Stablecoins provide constant liquidity: investors can move between assets, hedge exposure, or park funds on-chain without leaving the ecosystem.
Interoperability
Because stablecoins live on multiple blockchains, they act as a universal settlement layer across systems. They can fuel commerce, DeFi, and payments. They make blockchain usable for people who don’t want to gamble on price.
What are the risks of using stablecoins and cryptocurrencies?
Every innovation in finance introduces new forms of risk. Stablecoins and cryptocurrencies are no exception.
Here are some risks to be aware of when using stablecoins and other cryptocurrencies.
Regulatory uncertainty
Governments are still defining where these assets fit. Stablecoin issuers face bank-like oversight in some regions and legal gray zones in others. A sudden policy change (such as limits on issuance or redemption) can disrupt liquidity overnight. Broader cryptocurrencies face a patchwork of classifications: security, commodity, or payment token, depending on the jurisdiction.
Security and smart contract risk
While blockchains are resilient, the systems built on them aren’t flawless. Hacks on exchanges and smart contracts can quickly drain funds. Even well-audited code can be exploited, and users have little recourse once funds are gone. Custodial risk is real too: if an exchange or digital wallet provider fails, assets can vanish.
Transparency and reserve quality
Centralized stablecoins rely on issuers to maintain full, high-quality reserves. When disclosure is thin, confidence can erode quickly, as seen in past depegging events triggered by doubts over collateral.
Market and systemic exposure
Volatility remains the defining feature of non-stable cryptocurrencies. Prices can drop substantially, and liquidity can disappear in hours. If a major crypto coin loses value, the shock can cascade across the broader crypto market.
How to choose between stablecoins and cryptocurrencies?
Stablecoins and other cryptocurrencies serve different purposes in the same ecosystem. Choosing between them starts with what you’re trying to accomplish.
Investment vs. utility
If your goal is to grow capital, you’ll likely look to other cryptocurrencies: Bitcoin, Ether, or other network tokens that can appreciate (or crash) based on demand and innovation. Stablecoins won’t rise in value—their utility lies in stability, liquidity, and instant settlement.
Risk tolerance and time horizon
Stablecoins are the low-volatility end of the crypto spectrum. They’re suited for short-term holdings, operational cash, or payment flows where price certainty matters. Cryptocurrencies belong in portfolios built for higher risk and longer time horizons. Many investors balance both: stablecoins for liquidity, crypto for exposure to upside.
Current use case
If you need to send money, pay global teams, or manage on-chain treasury, stablecoins make operational sense. If you’re participating in network governance, staking, or DeFi yield strategies, native cryptocurrencies (e.g., Ether on the Ethereum network) are required.
Many businesses hold a blend: stablecoins for movement and measurement, and more volatile crypto for speculation and innovation. The right mix depends on what function is needed today.
Bridge is not a bank. The Prepaid Debit Visa Card is issued by Lead Bank and managed by Bridge Ventures, LLC. Fees may apply. See www.bridge.xyz/legal for more details.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Bridge does not warrant or guarantee the accuracy, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.
Request demo
