How Stablecoins Work and How They Are Regulated

In short: most crypto prices swing widely. A stablecoin is a token designed to stay close to a fixed value, usually one unit of a national currency such as the US dollar, so it can be used for payments and for moving money between crypto markets.

The core promise: redemption

A stablecoin's stability rests on a promise that the issuer will swap each token for a fixed amount of money. That idea appears in the legal definition used in the United States. In its proposed rule, published in the Federal Register on September 29, 2026, the Federal Reserve Board restates the GENIUS Act's definition of a "payment stablecoin": a digital asset designed to be used for payment or settlement, whose issuer is obligated to convert, redeem or repurchase it for a fixed amount of monetary value, and which the issuer represents will keep a stable value.

To make that promise credible, issuers hold reserves. Under the US framework described in the Fed's proposal, permitted reserve assets include money held at a Federal Reserve Bank and short-term US Treasury securities, among other listed categories. Other regimes take a similar approach: the UK Financial Conduct Authority's final rules for UK-issued stablecoins cover issuance, backing assets, redemption, safeguarding and disclosures.

What stablecoins are not

A stablecoin is not a bank deposit and not government money. The Fed's proposal says issuers must not suggest that their coins are backed by the "full faith and credit" of the United States, guaranteed by the US government, or covered by federal deposit insurance. It also bars issuers from paying holders interest or yield solely for holding the coin, and it asks questions about arrangements that run through affiliates or third parties.

Reserves reduce risk but do not remove it. The quality of the backing, the issuer's operations and the redemption terms all matter, which is one reason regulators are writing detailed rules.

A fast-moving rulebook

United States. The GENIUS Act was enacted on July 18, 2025. The Fed announced its proposals on September 24, 2026 and said comments close 60 days after Federal Register publication; the date is November 30, 2026. Treasury's Stablecoin Certification Review Committee issued an interim final rule on reviewing state certifications, effective September 30, 2026. For the details, see Fed Proposes GENIUS Act Rules for Stablecoin Issuers.

United Kingdom. The FCA published final rules for UK stablecoin issuers (PS26/10) on June 30, 2026. The full scope of regulated crypto activities under the UK regime expands from October 25, 2027, according to the FCA.

Singapore. The Monetary Authority of Singapore opened a consultation on putting its stablecoin framework into law, including powers to designate certain stablecoins as "systemic". Comments are due October 16, 2026 (Singapore time).

Things to check before using one

Ask who issues the coin and under which regulator. Find out what backs it and whether that is disclosed regularly. Check whether you can redeem it directly, and on what terms. Confirm which blockchain it runs on and whether your wallet or exchange supports it.

This article is for education and is not financial advice.

Sources

• Federal Reserve Board, Implementing the Federal Reserve Board's Responsibilities Under the GENIUS Act, Federal Register (Sept. 29, 2026)
• Federal Reserve Board, press release on two GENIUS Act proposals (Sept. 24, 2026)
• Treasury, Forms and Procedures for Review of State Certifications by the Stablecoin Certification Review Committee, Federal Register (Sept. 30, 2026)
• FCA, PS26/10: Stablecoin issuance (June 2026), and Overview of our cryptoassets regime policy statements (June 30, 2026)
• MAS, Consultation Paper P015-2026 (Sept. 2026)