A stablecoin is a digital version of a currency like the euro or the dollar. It moves at internet speed, works around the clock, and holds its value because it's backed by real money in regulated accounts. Here's how they actually work - and why Europeans are starting to pay attention.
Most people who hear the word "cryptocurrency" think of Bitcoin or Ethereum - digital assets whose prices swing 10% in a day. Stablecoins are something different. They're designed to do the opposite: hold a steady value, match the currency you already use, and behave in ways that feel more like money than speculation.
This article explains what stablecoins are, how they keep their value stable, why they exist at all, and what they actually mean for someone living in Europe. No jargon. No hype. Just the picture.
The 30-second answer
A stablecoin is a digital token that represents one unit of a real-world currency.
One EURC equals one euro. One USDC equals one US dollar. When you send a EURC to someone, you're sending them the equivalent of one euro, except it arrives in seconds and works on a global payment network that never closes.
The "stable" part comes from how they're backed. Every EURC in circulation is matched, one-for-one, by real euros held in regulated bank accounts. If everyone holding EURC decided tomorrow to convert back into regular euros, there are enough euros in reserve to honour every one of them.
That's it. That's the whole concept.
Everything else - the blockchains, the protocols, the technical infrastructure - is just the machinery that makes it work.
Why stablecoins exist
The first cryptocurrencies, like Bitcoin, solved an interesting problem: they allowed people to send value directly to each other online, without needing a bank in the middle. But they came with a side effect - their prices were wildly volatile. A loaf of bread priced in Bitcoin might cost €3 one day and €4.20 the next.
That made them useful for speculation and for specific cross-border edge cases, but impractical for everyday use. You can't really pay your rent in something that might be worth 30% more or less by the time the landlord receives it.
Stablecoins were created to solve this. The idea: keep the best parts of cryptocurrency - the speed, the global reach, the ability to move funds without going through a traditional bank - but remove the volatility by pegging the value to an actual, stable currency.
The first working stablecoin appeared in 2014. Today, hundreds of billions of dollars move through stablecoins every month, and they're used for everything from international business payments to on-chain savings.
How a stablecoin actually keeps its value stable
There are several different designs for stablecoins. The two that matter most to an everyday user are fiat-backed and crypto-backed.
Fiat-backed stablecoins (the ones you probably want)
This is the simplest model. A company issues the stablecoin, and for every token they issue, they hold the equivalent amount in real money - either as cash or in very short-term, extremely safe investments like government treasury bills.
EURC works this way. Circle, the company that issues EURC, holds euros in regulated financial institutions for every EURC in circulation. They publish monthly attestation reports - independent audits verifying the reserves exist - and the total supply is publicly visible on the blockchain at any moment.
USDC works the same way with US dollars.
Other fiat-backed euro stablecoins include:
EURe - issued by Monerium, regulated as electronic money in the European Economic Area. Notably, EURe holders can redeem directly to a bank account via SEPA.
EURS - issued by Stasis, one of the first euro stablecoins. Smaller in circulation than EURC but longer track record.
EURI - issued by Banking Circle and compliant with MiCA.
These are all trying to do roughly the same thing: give you a digital euro that holds its value because real euros back it up.
Crypto-backed stablecoins
These take a different approach. Instead of being backed by regular currency, they're backed by cryptocurrency held as collateral - typically at a ratio that over-collateralises the stablecoin. If you want to issue €100 worth of stablecoin, you might need to lock up €150 worth of cryptocurrency as backing. If the collateral loses value, the system automatically adjusts.
The most well-known example is DAI (issued by the MakerDAO protocol, now rebranded as Sky). EURA (formerly agEUR, issued by Angle) is a euro-denominated equivalent.
Crypto-backed stablecoins are decentralised - no single company controls them. That's a feature for some users and a drawback for others, since the mechanism is more complex and historically more prone to stress during market crashes.
What about "algorithmic" stablecoins?
You may have heard about these. They try to maintain their peg through code and market incentives, without any real backing. Most have failed - the most famous collapse, TerraUSD (UST), wiped out around $40 billion in 2022.
For an everyday user, the practical advice is simple: stick to fiat-backed stablecoins from regulated issuers. EURC and USDC are the two most widely used in Europe.
What does "on a blockchain" actually mean?
Stablecoins live on blockchains - public, shared databases that keep track of who owns what. The blockchain doesn't care who you are or where you live. It just records that a certain wallet address holds a certain amount of EURC, and it updates whenever a transaction happens.
This is fundamentally different from how traditional money works in a bank. When you have €1,000 in a bank account, the bank keeps a private record of that on its own servers. You can't see the underlying ledger. Other banks can't verify it directly. The record exists only because the bank says it does.
With a stablecoin, the record is public. Anyone can verify how many EURC exist, how many are held at any given address, and that every transaction actually happened. The bank-equivalent (Circle, in EURC's case) still holds the real euros, but the movement of the tokens themselves happens on a network no single party controls.
Different stablecoins run on different blockchains. EURC currently runs on Ethereum, Base, Avalanche, Solana, and Stellar. Most people won't need to think about this - the app they use handles it - but it's worth knowing that these are public networks, not private company infrastructure.
What you can actually do with a stablecoin
Once you hold stablecoins, you can:
Send them to anyone, anywhere, in seconds. No SWIFT codes. No correspondent banks. No waiting for the transfer to clear on Monday morning. You send, they receive. Usually in under a minute.
Hold them as a digital version of your currency. For Europeans working in dollars, or dollar-earners spending in euros, stablecoins make currency switching effortless and cheap - no expensive FX spreads from a high-street bank.
Earn yield on them. Because stablecoins can be lent to other users through open lending markets (think of these as transparent, on-chain versions of money markets), you can earn interest on your balance - currently around 3-5% a year on EURC and USDC, depending on the protocol. We wrote more about this in our guide to non-custodial wallets, since most of this yield-earning happens outside traditional banks.
Spend them. Services like the Defied Visa card let you spend your stablecoin balance anywhere Visa is accepted, with the conversion to local currency happening at the point of sale.
Stay out of the traditional banking system where you want to. For Europeans who have had accounts frozen, who live in countries with weaker banking infrastructure, or who simply value having an account no company can close, stablecoins provide a meaningful alternative.
Euro stablecoins vs dollar stablecoins - which should you use?
Most Europeans reading this probably earn and spend in euros. So why is USDC - a dollar stablecoin - more widely used than EURC?
Two reasons. First, the stablecoin industry started in the US and the dollar has a much longer head start. Second, liquidity tends to concentrate: the more USDC there is, the easier it is to use USDC, which makes more people hold USDC, and so on.
That's changing. Under Europe's new MiCA regulation, euro stablecoins are becoming more prominent and US dollar stablecoins face additional requirements. EURC, EURe, and EURI are all growing.
For a European user, the practical breakdown:
Earning, spending locally, cross-border with Europe - euro stablecoin (EURC).
Working with US-based clients, receiving payment from global marketplaces, trading - dollar stablecoin (USDC).
A bit of both - hold both. Converting between them takes seconds and costs a small fixed fee.
Are stablecoins regulated in Europe?
Yes - and increasingly so.
In 2024, Europe's MiCA regulation (Markets in Crypto-Assets) came fully into force. It imposes strict rules on stablecoin issuers operating in Europe: they must hold adequate reserves, publish regular attestations, meet capital requirements, and be authorised as an Electronic Money Institution (EMI) or equivalent.
This means stablecoins available to European users are among the most regulated in the world. It also means some stablecoins have been delisted from European platforms for not meeting the requirements. EURC, EURe, and USDC all continue to operate in Europe under the new framework.
It's worth understanding what MiCA does and doesn't cover. It regulates stablecoin issuers - the companies that create and back the tokens. It doesn't regulate self-custody wallets or open lending protocols like Aave and Morpho. Those remain outside the framework, which is something we cover in more detail elsewhere.
Are stablecoins safe?
Safer than other kinds of cryptocurrency, yes. But "safe" doesn't mean "risk-free" - and there are three categories of risk worth understanding.
Issuer risk. A fiat-backed stablecoin is only as trustworthy as the company issuing it and the banks holding the reserves. If Circle were to fail, or if the banks holding EURC reserves collapsed, EURC could briefly lose its peg. This is a real risk but a small one, especially for large, regulated issuers like Circle. The monthly attestations are there specifically to help you verify this.
Smart contract risk. Stablecoins run on blockchains, and the smart contracts that govern them (and any lending protocols you interact with) could, in theory, have bugs or be exploited. Established stablecoins like EURC and USDC have extensive audit histories and have operated without incident for years. New or unaudited ones are much riskier.
Custody risk. This is the risk that you, personally, lose access to your stablecoins - through a lost password, a phishing attack, or a compromised wallet. Unlike a bank account, there's no customer support line to recover your funds. This is where choosing the right wallet matters enormously, which is why we wrote the non-custodial wallet guide.
One thing stablecoins are not protected by: the national deposit guarantee schemes that cover bank deposits up to €100,000 in the EU. Stablecoins are a different product with different protections. Our full risk disclosure covers the details.
Common misconceptions
"Aren't stablecoins the same as Bitcoin?" No. Bitcoin is a speculative asset whose price fluctuates based on market demand. A stablecoin tracks the value of a real-world currency and is designed specifically not to fluctuate. They share the technology (blockchains) but nothing else.
"Isn't this basically just PayPal?" No - and this is the key difference. PayPal holds your money on their servers, in their name, under their control. They can freeze your account, impose transaction limits, or close it with limited recourse. A stablecoin in a self-custody wallet is yours. No intermediary has the ability to restrict it.
"Will my bank let me use stablecoins?" Most EU banks allow you to convert euros to stablecoins and back through regulated partners. Some conservative banks may flag large transactions, but stablecoin activity is increasingly routine, especially through licensed fintechs.
"Do I need to understand blockchain to use them?" No. The point of well-designed stablecoin apps is that the underlying technology is invisible. You use them like any other payment app - with the meaningful difference that your account can't be frozen by anyone.
The bottom line for European users
A stablecoin is a digital version of a currency, backed 1:1 by the real thing, that moves at internet speed.
For a European saver, they offer three things that traditional bank accounts don't:
Global reach at no extra cost - send money anywhere in seconds, without the €25 wire fee.
Higher yield through direct access to lending markets - currently 3-5% a year on EURC and USDC.
Full self-custody - an account that only you can access and that no institution can freeze.
They come with risks that banks don't carry - issuer risk, smart contract risk, and the responsibility of your own security. Whether that trade-off is worth it depends on what you want from your money.
For many Europeans, the answer is increasingly "yes, at least for part of my savings." Which is why euro stablecoins are growing fast, and why we built Defied.
Start with Defied
Defied is a non-custodial wallet that lets you hold, send and earn on EURC and USDC - no crypto experience needed. Join the waitlist and we'll let you know when your spot opens.
This article is for informational purposes only. Defied is a non-custodial software interface and does not provide financial advice. Please read our [risk disclosure](/risks) and [terms of use](/terms) before using the Services.