Are you curious about why stablecoins have become a popular way to move value online and how they differ from other cryptocurrencies? This article explains the mechanics behind stablecoins, the types of backing they use, and the practical considerations you should keep in mind before holding or using one.
The plain explanation
A stablecoin is a type of digital token that aims to keep its price stable relative to a reference asset, most commonly a fiat currency like the US dollar. Unlike Bitcoin or Ethereum, whose prices can swing wildly, stablecoins are designed to stay close to a fixed value, typically within a few cents of the target.
There are three main ways a stablecoin can maintain its peg:
- Fiat‑backed (or custodial) stablecoins: Each token is backed 1:1 by actual dollars held in a bank account or a trust. When you buy one token, the issuer stores an equivalent amount of fiat currency, and when you redeem the token, the issuer returns the fiat.
- Crypto‑backed stablecoins: These are collateralised by other cryptocurrencies. Because the underlying assets are volatile, the stablecoin is over‑collateralised – for example, $150 worth of ether might be locked to mint $100 of stablecoin. Smart contracts automatically liquidate collateral if its value falls too far.
- Algorithmic (or non‑collateralised) stablecoins: No reserves are held. Instead, a set of algorithms expands or contracts the token supply based on market demand, attempting to keep the price near the target. This model is riskier because it relies entirely on market participants’ confidence.
Regardless of the model, stablecoins serve three common purposes:
- Fast, low‑cost transfers: Moving a stablecoin across a blockchain is usually cheaper and quicker than a traditional bank wire.
- Bridge between fiat and crypto: Users can enter the crypto ecosystem without exposing themselves to price volatility.
- DeFi utility: Stablecoins are widely used as collateral, for lending, and for earning interest on decentralized finance platforms.
Because stablecoins sit at the intersection of traditional finance and blockchain, they also attract regulatory scrutiny. Issuers often need to prove that the backing assets exist and are auditable, and they may be subject to banking, securities, or commodities regulations depending on the jurisdiction.
A real example
On 27 October 2026, Ripple announced an expanded partnership with Robinhood to bring Ripple’s RLUSD stablecoin to both Robinhood’s retail app and its institutional services. RLUSD, launched in December 2024, is a fiat‑backed stablecoin that had reached a market capitalization of $2.57 billion, with nearly $1 billion issued on the XRP Ledger according to DeFiLlama data. The collaboration includes integration of RLUSD into Robinhood’s treasury management, lending, and trading platforms, as well as the use of Ripple Treasury for Robinhood’s internal cash‑flow operations.
This partnership illustrates how a fiat‑backed stablecoin can be adopted by a mainstream brokerage to offer users a stable digital asset for settlement, lending, and even perpetual futures trading. It also shows the importance of custodial arrangements—BNY Mellon’s digital asset custody platform now holds both XRP and RLUSD, providing a regulated way for institutions to store the tokens.
What it means for you
If you are looking to earn online or move money efficiently, a stablecoin like RLUSD can provide a “digital cash” alternative that settles instantly on a blockchain. You can use it to:
- Transfer funds across borders without waiting for traditional banking cut‑offs.
- Deposit the token into a DeFi lending protocol to earn interest, keeping in mind that the interest rates are not guaranteed and the platform may be vulnerable to smart‑contract bugs.
- Use it as collateral for margin trading on platforms that support stablecoin‑based loans.
However, the stability of the token depends on the issuer’s ability to maintain the 1:1 backing. If the custodial bank were to face liquidity issues or if audits revealed shortfalls, the peg could break, exposing you to loss.
What to check / how to judge
Before you decide to hold or use a stablecoin, run through this short checklist:
- Backing transparency: Look for regular, independent audits that verify the fiat reserves match the circulating supply.
- Regulatory status: Confirm that the issuer has the necessary licences in the jurisdictions where you reside.
- Custody solution: Prefer stablecoins stored with reputable custodians (e.g., major banks or regulated digital‑asset custodians) rather than solely on a private ledger.
- Smart‑contract risk: If the stablecoin is crypto‑backed or algorithmic, review the code audits and understand the liquidation mechanisms.
- Liquidity: Check that the token is listed on multiple reputable exchanges and that there is sufficient market depth for the size of your transactions.
FAQ
Is a stablecoin really as safe as a bank deposit?
Not exactly. While fiat‑backed stablecoins aim for a 1:1 reserve, they are not insured by government deposit insurance schemes. The safety depends on the issuer’s custodial practices and audit reliability.
Can I earn interest on a stablecoin?
Yes, many DeFi platforms and some centralized services offer interest on deposited stablecoins. The rates can be attractive but come with risks such as smart‑contract bugs, platform insolvency, or changes in market demand.
Do stablecoins affect my taxes?
In most jurisdictions, transferring stablecoins is a taxable event if the value changes between purchase and sale. Holding a stablecoin that remains pegged to a fiat currency may still trigger reporting requirements, so consult a tax professional.
What’s the difference between RLUSD and other stablecoins like USDC?
Both are fiat‑backed, but RLUSD is issued on the XRP Ledger and benefits from Ripple’s treasury and custody partnerships, while USDC operates primarily on Ethereum and other blockchains. Differences can include transaction speed, fee structure, and the specific custodial banks involved.
This article references reporting from cointelegraph.com.
