Banks are testing a new type of crypto dollar called stablecoins. Here’s what that means for consumers

If you’ve ever sent money via Western Union, paid with a Visa card while traveling, or waited days for an electronic payment to settle, you’ve used a system called “payment rails” that moves money between friends, family and businesses around the world.

Now, banks and payments companies are testing how cryptocurrency technology can speed up these systems and help people process and coordinate payments more efficiently.

One such tool is a stablecoin, a digital token designed to maintain a consistent value. Stablecoins are typically pegged to the U.S. dollar (USD), but they can also be backed by other currencies, including fiat currencies (government-issued) and cryptocurrencies.

Unlike other cryptocurrencies, whose prices can rise and fall dramatically, USD-backed stablecoins are, as their names suggest, designed to remain predictable. Therefore, they are designed for daily transactions rather than trading and investing. OpenSea explains how the introduction of stablecoins may impact consumers.

Interest in stablecoin technology has grown steadily over the past seven months as regulations become clearer. In July 2025, President Donald Trump signed into law the Genius Act, which created a federal framework for certain U.S. dollar-backed digital crypto tokens. Regulators then kicked off 2026 with proposals for regulating the cryptocurrency market and careful consideration of issues such as which regulator should oversee digital assets and how dollar-backed stablecoins could be used within the banking system.

This regulatory momentum makes banks more willing to test the technology at scale, increasing the likelihood that you’ll see stablecoins as an option at some checkouts soon. According to Bloomberg, stablecoin trading volume will reach approximately $33 trillion by 2025, up from $19.7 trillion a year ago, and the World Economic Forum predicts that 2026 will be a “defining moment” for crypto technology.

A stablecoin is a digital cryptographic token that represents a fixed amount of currency, usually one U.S. dollar. Each token is designed to continuously track that value because it is backed by an equal amount of reserves held by the issuer or organization that creates and manages the stablecoin.

Stablecoins can be issued by banks, government-related entities, or private companies. Stablecoin issuers decide how much cryptocurrency exists and hold the funds or assets backing each token. Different issuers operate under different levels of regulation, and the rules for each are still being developed by lawmakers.

Still, issuers are responsible for complying with regulations, providing disclosures to customers, and maintaining systems that help keep stablecoin values ​​predictable.

“Not all stablecoins are created equal,” said Corey Ballou, director of trust and security engineering at OpenSea. “The term encompasses a variety of designs with vastly different risk profiles.”

The main difference between stablecoin types is the method used to maintain their value. Ballou explained that some stablecoins are issued by regulated entities and are backed by reserves such as cash or short-term government securities. Others rely on algorithms or market incentives to try to maintain a peg to the dollar.

“These design choices are important,” Ballou said, “especially for consumers who may think that all stablecoins work the same way.”

Ballou explained that before considering stablecoins as payment instruments or as a store of funds, users should understand how stablecoins retain their value. Algorithmic stablecoins, in particular, can perform significantly differently during periods of market stress.

USD-backed stablecoin

This is the most common (and easiest to understand) stablecoin. Each digital dollar is backed by real currency or government assets (such as U.S. dollars or Treasury bonds) held by the company or bank that issued it. The idea is that for every digital dollar in circulation, there is a real dollar or something very close to it that is set aside.

One example is the US Dollar Coin, or USDC for short, issued by American fintech company Circle. Circle designed USDC for payments, transfers, and financial transactions. USDC is 100% backed by cash and “cash equivalent assets” such as short-term U.S. Treasuries, the company said.

Similar stablecoins exist for other currencies, such as the euro (EUR). Fiat-backed stablecoins are the type most commonly used by banks, payment companies, government-related projects, and everyday consumers.

Cryptocurrency-backed stablecoins

These stablecoins are not backed by cash, but by other cryptocurrencies. Computer programs help manage this process. Such stablecoins are more commonly used by traders familiar with cryptocurrency platforms than with traditional banking systems or payment applications.

One example is SkyDollar (USDS), a stablecoin issued by Sky. Sky, formerly known as MakerDAO, is a remote organization of users, developers and investors rather than a single issuer. The value of its stablecoin is collateralized by various cryptocurrencies. Since each cryptocurrency has a different value, the organization uses code to manage the system that maintains the stablecoin’s value of $1.

Algorithm-based stablecoin

These stablecoins are not backed by cash or crypto assets. Instead, they rely on software that automatically increases or decreases the number of coins in circulation to keep prices stable. Some of these systems have failed in the past, most notably the collapse of an algorithmic stablecoin called TerraUSD (UST) in 2022, which “decoupled” from a $1 valuation and lost value.

Stablecoins are not expected to completely replace cash, credit cards or bank accounts for most consumers. Instead, banks, payments companies and online businesses are starting to offer digital tokens pegged to the U.S. dollar as an additional means of payment flexibility. Stablecoins are already used in some online shopping checkouts, money transfer apps and cryptocurrency platforms, where they can sometimes settle faster and with lower fees than traditional payment methods.

Several large tech companies are testing stablecoins as a new way to send and receive money digitally. In January 2026, Polygon, one of the leading companies building crypto software, said it would spend more than $250 million to acquire two companies as part of an effort to introduce stablecoins to new consumers. A company operates a cryptocurrency exchange, or a marketplace where people can buy and sell digital tokens. Another develops crypto wallet software that allows consumers to store and spend digital currencies in accounts they own.

For most consumers, stablecoins are likely to appear within the apps and services they already use, rather than as a new type of currency they need to find or manage. On financial apps like Revolut—which an estimated 65 million people use to send money between family and friends internationally—stablecoins are now as much a currency option as traditional fiat currencies. Revolut announced in October 2025 that it would eliminate transaction fees for certain types of stablecoins, which may also make certain peer-to-peer payments cheaper.

Visa, meanwhile, is testing stablecoins to help businesses pay overseas suppliers, contractors or partners faster and at more convenient times when banks in different time zones are closed.

In other cases, the decision to use a stablecoin may come down entirely to customer preference, with recipients not needing to adjust their banking habits at all. For example, payments company Stripe plans to let businesses accept stablecoins from customers who want to pay invoices and subscriptions in cryptocurrency. Customers click “Pay” as usual, but select their stablecoin as the currency. These payments will then be settled in USD in the business’s Stripe balance like any other “normal” payment.

Likewise, remittance apps such as Zelle announced in October 2025 that they would begin testing the use of stablecoins to allow Zelle users to send money internationally. In the same month, Western Union, a company long known for international money transfers, announced the launch of a pilot of its own digital dollar token, USDPT. The token will be issued by Anchorage Digital Bank, a federally regulated digital asset bank, in the first half of 2026.

All this momentum carries over to the public currency space as well: In January 2025, Wyoming became the first state in the United States to launch a state-backed stablecoin, called Frontier Stable Token, or FRNT, to test how the digital dollar could be used for payments and public project financing while complying with existing laws.

Finally, major banks including Bank of America, Citigroup, Goldman Sachs, Deutsche Bank, UBS, Barclays, Santander, BNP Paribas, Mitsubishi UFJ Financial Group and TD Bank Group said they are jointly exploring stablecoins pegged to major national currencies such as the U.S. dollar, euro and Japanese yen, looking for ways to move funds faster using the underlying technology in a compliant manner.

Stablecoins are designed to be less volatile than other cryptocurrencies, but their safety for consumers depends on how they are issued, stored and used.

Ballou said that in addition to stablecoin types, the way people use “digital wallet” applications can also play a significant role in security and sometimes even open up new risk opportunities.

Only store in your crypto wallet the amount you are willing to spend or, in the worst case, lose if it gets hacked. “Think of a digital wallet as a payment app that you use for daily expenses, rather than a place where all your savings are stored,” Ballou said.

Crypto wallets function more like payment apps than traditional bank accounts. One example is MetaMask, a widely used application that allows people to store and move digital assets. Interestingly, MetaMask has its own USD-pegged stablecoin, mUSD, which users can save and send directly within the app.

Ballou added that starting with a small amount, keeping wallet software up to date, and using device-level protections like passwords or biometric locks can significantly reduce risk.

He also emphasized on protecting recovery information to allow users to regain access to their wallets if they lose their phone or device. “Recovery phrases should be written down and stored offline in a secure location,” he says. “They should not be saved digitally or shared with anyone.”

Finally, Ballou urged users to slow down before sending funds. “Taking an extra minute to verify transaction details before hitting send can make a big difference,” he said. “Users should carefully check the destination address, amount, fees and assets before confirming a transaction.”

If used correctly, stablecoins can help consumers pay faster and more flexibly. Like any new technology, they require new habits. Sticking to trusted apps and double-checking details before sending money can help users enjoy the benefits while reducing risk.

this story is made of open sea and reviewed and distributed by stacker crane.