How do stablecoins work – and are they risky business?

Stablecoins – cryptocurrencies backed by real assets – are all the rage and have been enthusiastically backed by Donald Trump’s administration. Are they a danger to financial stability?

U.S. President Donald Trump holds a coin
(Image credit: Joe Raedle/Getty Images)

What’s the point of stablecoins?

Stablecoins – principally tether and circle – are digital tokens run on public blockchains (digital ledgers) whose value is determined not by supply and demand, as with bitcoin, but are backed by a specified asset (such as the US dollar), or basket of assets. Whereas bitcoins are arguably useful as a store of value – albeit a wildly speculative one – stablecoins are genuinely useful when it comes to transactions. The main use of stablecoins is as a safer currency reserve held between trades on cryptocurrency exchanges.

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Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published Customers.com, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.   

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.