What stablecoins are and why they are used for payments
Every professional who moves money in a deal eventually runs into the same ceiling: the mechanics of getting paid don’t match the speed or structure of the deal itself. Wires cut off at three in the afternoon. Banks are closed on weekends. Multi-party splits require multiple instructions, multiple confirmations, and multiple opportunities for something to go wrong. Stablecoins exist because that ceiling is a real operational problem — and they are now serious enough, regulated enough, and liquid enough that professionals who route significant money need to understand what they actually are, not as a speculative asset class, but as a payment instrument. This article covers the fundamentals: what a stablecoin is, why its value holds, how the peg actually works, and why these properties make stablecoins well-suited to settling real payments.
What a stablecoin is
Start with the simplest version. A stablecoin is a digital token whose price is pegged to a stable asset — most commonly the US dollar. It lives on a blockchain, moves between wallets like any other onchain asset, and settles with the finality that blockchain infrastructure provides. What distinguishes it from every other cryptocurrency is that one token is designed to be worth exactly one dollar — always, not just on average, not approximately.
A stablecoin is a type of cryptocurrency designed to maintain a stable price by being linked to an underlying asset, such as the US dollar. Unlike more volatile cryptocurrencies like Bitcoin, stablecoins provide a stable store of value and offer a more reliable medium for transactions. That stability is everything. Without it, you do not have a payment instrument — you have a speculative position that fluctuates between the moment you send it and the moment the recipient receives it. For anyone moving deal proceeds, commission checks, or disbursements that have to land at a precise dollar amount, that volatility is disqualifying. Stablecoins eliminate it.
They are not speculative instruments — they are settlement instruments. That framing matters. Most of the confusion professionals encounter about stablecoins comes from treating them as part of the crypto trading universe, when the relevant comparison is to a wire transfer, not to Bitcoin.
Why the value stays stable: the mechanics of the peg
The word “peg” gets used often, but it’s worth being precise about how it works in practice, because the mechanism varies by stablecoin type — and that variation has real implications for how reliable any given stablecoin is as a payment tool.
Fiat-backed stablecoins
The most straightforward structure. Fiat-backed stablecoins like USDC or USDT hold cash or cash-equivalent reserves in bank accounts. Every digital coin is backed by a corresponding fiat unit, making redemption straightforward. When an institution wants to mint new tokens, it deposits dollars; when it redeems tokens, it receives dollars back. The token in circulation has a dollar sitting behind it somewhere in a regulated account.
The peg works through three core mechanics: issuers hold reserves like cash and short-term government bonds, they mint tokens when you deposit collateral and burn them when you redeem, and arbitrageurs buy discounted coins or sell overpriced ones until parity returns. This price discipline turns these digital assets into a low-volatility bridge between traditional money and blockchain infrastructure.
The arbitrage mechanism is worth dwelling on, because it is what keeps the secondary market price at $1.00 even when the token is trading on an exchange far removed from the issuer. If USDC momentarily trades at $0.99 on an exchange, any institution with access to Circle’s mint can buy the cheap tokens and redeem them for a full dollar, pocketing the spread and pushing the price back up. If it trades at $1.01, they mint new tokens at par and sell into the market. This pressure is constant and essentially automatic, which is why the peg holds tightly under normal conditions.
These stablecoins are backed 1:1 by a reserve of fiat currency held by the issuer, to ensure that the stablecoin can be redeemed for its pegged value. The quality and transparency of those reserves is where the real due diligence question lies. USDC, issued by Circle, is the most transparent of the major fiat-backed stablecoins: USDC and EURC are fully backed by highly liquid fiat reserves held separately from Circle’s operating funds at leading financial institutions. USDC reserve holdings are fully disclosed on a weekly basis, along with associated mint/burn flows. Additionally, a Big Four accounting firm provides monthly third-party assurance that the value of USDC reserves are greater than the amount of USDC in circulation. The reserve itself is not sitting in a simple bank account: USDC reserves are held in two pools — cash at regulated US banks and short-dated US Treasury bills held in the Circle Reserve Fund, a SEC-registered government money market fund managed by BlackRock.
USDT, issued by Tether, operates at considerably larger scale — USDT net circulation stands at $189.77 billion — but with a different reserve composition. USDT reserves include Treasury exposure but layer in secured loans, Bitcoin, and gold. The result: USDC reserves are simpler and more liquid; USDT reserves carry higher yield but more credit, market, and disclosure risk. For a dealmaker who needs certainty that a stablecoin will still be worth exactly a dollar when a counterparty goes to off-ramp it, that distinction is worth understanding.
Crypto-backed stablecoins
A second model uses cryptocurrency, rather than dollars, as the collateral. Crypto-collateralized stablecoins are backed by other crypto assets rather than fiat. They often need to be over-collateralized to account for price volatility of the backing assets. The classic example is DAI: users need to lock up more cryptocurrency than the value of the stablecoins they want to mint — for example, $150 worth of Ethereum in order to mint $100 worth of DAI. This over-collateralization makes sure that the system can handle changes in the market. If the collateral value falls sharply, smart contracts automatically liquidate the collateral to buy back the stablecoins and ensure the system remains solvent.
This structure is more decentralized than fiat-backed models — there is no company holding dollars in a bank account that you have to trust — but the peg is mechanically more complex, and the system’s stability is dependent on the value of the underlying crypto collateral not collapsing faster than the liquidation mechanisms can respond.
Algorithmic stablecoins
The third model attempts to maintain stability without collateral, using code instead. Algorithmic stablecoins aren’t backed by real assets — instead they rely on algorithms to maintain a stable price. The systems used to achieve a fiat peg vary, but they usually involve dynamically adjusting the token supply.
The risk profile here is categorically different from the other two models. A de-pegging event occurs when a stablecoin loses its parity with the asset it tracks. This scenario is precisely what the mechanisms aim to prevent — however, as historical examples have shown, they’re often insufficient at preventing the system’s collapse. A de-peg can happen due to a fault in the code, or, more commonly, due to a loss of trust in the stablecoin. The Terra/UST collapse is the defining case study: when this mechanism broke, as with TerraUSD, the stablecoin collapsed. For anyone routing real deal proceeds, algorithmic stablecoins are not serious payment infrastructure today. The market has largely reached this conclusion: current data suggests that the market prefers fiat-backed and, to a lesser extent, crypto-backed stablecoins over their algorithmic counterparts.
Why stablecoins suit payments specifically
Stability answers the first objection — but the question of why professionals are actually using stablecoins for payment settlement goes beyond just holding a dollar value. The operational properties of stablecoin payments are substantively different from traditional payment rails, and those differences are exactly what matter in a deal.
Settlement that is final
In traditional banking, the appearance of a payment and actual settlement are two different things. In traditional banking, those two things — the appearance of a credit and actual settlement — are often separated by hours or days. An ACH payment might show as pending in a recipient’s account before the interbank settlement cycle completes. A wire transfer might be credited to an account before the correspondent banking chain has fully settled between institutions.
Stablecoin settlement works differently at the infrastructure level. Stablecoin settlement is the on-chain confirmation that permanently transfers ownership of funds from sender to recipient. Once a transaction is confirmed on the blockchain, it is final — no clearing cycle, no interbank net settlement, no recall window. Both parties see the same record simultaneously on the same ledger, typically within seconds of the transaction being broadcast.
Stablecoin settlement collapses the instruction and settlement sequence into one. The stablecoin itself carries the value. Settlement happens when the token moves on-chain, with no separate messaging-then-settlement sequence behind it. This matters enormously in a deal context, where the difference between “sent” and “cleared” can determine whether a closing happens or falls apart.
Speed and availability
Stablecoins settle at internet speed. A transfer usually clears within seconds or minutes at any time of day, any day of the year. There are no cutoff times and no bank holidays. That last point is easy to underestimate. A deal that closes on a Friday afternoon, or requires international participants in different time zones, does not wait for banking hours. The blockchain does not have a business day.
The contrast with wires is stark. A domestic wire through a US bank costs $25 to $30 and settles same-day during business hours. An international SWIFT wire costs $40 to $50 in sender fees alone, plus $15 to $50 per intermediary bank, and takes one to five business days. The gap widens further on weekends and holidays: traditional wire infrastructure shuts down entirely, while stablecoin networks operate 24/7/365.
For a cross-border payment, the improvement is even more fundamental. A cross-border wire transfer that used to take two to five business days through a correspondent banking chain now settles in under a minute on blockchain rails. That is not an incremental improvement. It is a different category of infrastructure.
Transparency
Every stablecoin transaction is recorded on a public blockchain, creating an immutable ledger. Both parties — and any other authorized party — can verify that a payment was made, what amount was transferred, and when it settled. There is no ambiguity about whether funds moved, no need to reconcile bank statements between parties, and no lag between the transaction and the record. At a high level, stablecoins fundamentally change the mechanics of cross-border settlement by operating on a unified ledger, where both parties transact on the same blockchain, removing reconciliation, and instant finality, where settlement completes once the transaction confirms onchain.
For a professional whose clients need documentation that a payment went where it was supposed to go, this is not a minor benefit. The transaction hash is the receipt. It is verifiable by anyone, at any time, without calling a bank.
Programmability
Stablecoins allow businesses and individuals to transfer value globally, 24/7, with near-instant finality. This innovation goes beyond speed — it introduces programmable money. Smart contracts allow payments to be automated, conditional, and integrated directly into software applications.
In a multi-party deal, programmability means that the logic for splitting proceeds can be built directly into the payment itself. Instead of a single payment landing in one account and then being manually disbursed to each recipient — a process that requires additional wires, additional instructions, additional delay, and additional points of failure — the split happens at the transaction layer. Smart contracts enable conditional and automated payment logic, including batch payouts to multiple recipients in a single transaction.
This is precisely the context where a tool like Shaka becomes the practical answer. A broker, attorney, or advisor who is coordinating a multi-party disbursement — commissions, referral fees, advisor compensation — can set the recipient wallets and percentages once, and the funds reach every party directly, in one transaction, without the proceeds ever sitting in a pooled account waiting to be manually sorted out. The deal closes, and the money lands. Immediately.
What the peg risk actually looks like in practice
No instrument is without risk, and stablecoins carry specific risks that any professional routing significant money should understand clearly — not to avoid stablecoins, but to evaluate them with the same rigor they’d apply to any counterparty.
The primary risk in fiat-backed stablecoins is reserve quality. The peg holds because the reserves hold. If a major fiat-backed stablecoin’s reserves were found to be insufficient or illiquid, the secondary market price would fall below $1.00 as confidence dropped. Reserve management, redemption mechanisms, and regulatory compliance determine whether stablecoins maintain their peg during stress.
The leading stablecoins have navigated stress events. The 2023 SVB depeg incident, where USDC briefly traded to $0.87 because Circle held approximately $3.3 billion in deposits at the failing Silicon Valley Bank, prompted Circle to consolidate banking relationships toward the Reserve Fund structure. USDC re-pegged within 72 hours once the underlying banking situation was resolved. USDT has also experienced brief dislocations — during the Terra/Luna collapse, USDT traded as low as roughly $0.95 on some venues for several hours before snapping back to $1. These events are worth knowing about. They are also exceptional. In normal conditions, both pegs trade within approximately 10 basis points of $1.00.
The regulatory environment has also tightened significantly, which improves the foundation. The GENIUS Act added a 100% reserve backing requirement, monthly public disclosure mandate, Bank Secrecy Act application, and holder-priority insolvency claims for payment stablecoins in the United States. This does not eliminate risk, but it raises the floor on transparency and accountability for issuers operating inside regulated jurisdictions.
A second risk is irreversibility. The payment is final once it’s confirmed on the chain and it’s irreversible like a cash payment. For a professional who is disbursing funds to verified parties in a structured deal, this is a feature — you know the payment completed, you know it cannot be recalled by a counterparty after the fact, and you have an immutable record. For a scenario where wrong wallet details were used, irreversibility is costly. Precision at the point of payment setup is therefore not optional.
Who is actually using stablecoins for payments
Stablecoin transaction volume reached $27.6 trillion in 2024, surpassing the combined annual volume of Visa and Mastercard. That figure includes settlement activity across many types of financial flows — but it signals that stablecoin payment rails have crossed from experiment into production infrastructure. Stablecoin payments are no longer a side experiment — they are a production rail with real volume and real compliance requirements.
The adoption is concentrated in specific corridors and use cases where the advantages of stablecoin settlement are most pronounced: cross-border payments where SWIFT’s correspondent banking chain is slow and expensive, multi-party disbursements where manual processing creates delay and operational risk, and deals involving participants in different time zones who cannot coordinate around a bank’s business hours. These are not edge cases for deal professionals — they are the core of the job.
Regulated businesses typically favour fiat-backed structures because each token is pegged to a real-world asset, such as the dollar. The preference is not ideological — it is about predictability and auditability. A fiat-backed stablecoin with published reserves, monthly attestations, and regulatory oversight sits in the same conceptual category as a money market instrument. It is designed to be worth exactly one dollar when the recipient needs to redeem it.
The professionals who are moving fastest with stablecoin payments are the ones who understand this distinction: the stablecoin is the rail, not the asset. The dollar value is preserved. The blockchain provides the speed, the finality, the transparency, and the programmability that legacy payment rails cannot match. What moves faster is not the dollar — it is the certainty that the dollar arrived.
Putting it together
A stablecoin is a blockchain-native token whose value is kept at parity with a fiat currency through a combination of reserve backing, arbitrage mechanics, and — in the case of the most established issuers — rigorous third-party attestation. It is not volatile because it is not speculative. It is a dollar that happens to live on a blockchain, which means it can move at blockchain speed: settlement in seconds, finality that is immediate and irrevocable, availability around the clock every day of the year. For professionals who structure and close deals involving multiple parties, multiple recipients, and payment flows that need to land precisely and verifiably, stablecoins are not a technology curiosity — they are the closest thing the payment world has produced to a wire that works like cash. The instrument has matured enough, and the infrastructure around it has tightened enough, that the remaining question is no longer whether stablecoins belong in serious deal payment flows. It is how to use them well.
