Stablecoins and digital money compared

A stablecoin is a digital token designed to hold a steady value against a currency, usually a national currency. Fiat-backed versions aim to hold reserves, such as bank deposits and short-term government debt, equal to the tokens in circulation. Crypto-backed versions lock up more crypto collateral than they issue, which can fail when that collateral falls quickly. Algorithmic designs try to keep the peg by adjusting supply through a paired token, and designs of this kind have failed when many holders tried to leave at once. A peg is a design goal, not a promise.

Stablecoin holders usually cannot redeem directly with the issuer, and tradable values can drift from the target, especially under stress. For that reason, regulators focus on reserve quality, disclosure, redemption rights and the operations of the issuer and its custodians. Central bank digital currencies are different: they would be a digital form of central bank money, and several central banks are still in design or pilot stages. Cross-border payments often pass through chains of banks, which can make them slow. Read the reserve report and the redemption terms before you rely on any digital money.