What is a Stablecoin? Definition, Types, and How it Works

What is Stablecoin? Benefits for Small Businesses Today

Traditional banking wasn’t built for today’s digital ecosystem. Whether you’re a small business or global enterprise, the way you operate has dramatically shifted digital, so it makes sense that the way you bank should too.

Crypto has offered a solution as a medium of exchange that is decentralized and not bound to the limits of the traditional system; no bank delays, holiday closures, hidden operational fees, or centralized intermediaries. These aspects can slow down your business and cost you money, and why should they? With the tools of digital ecosystems, money can and should move at the pace of your business.

Until stablecoins, crypto solutions were only marginally successful. While freeing you from traditional banking limits, crypto still had to contend with volatility, causing potentially drastic price fluctuations that were too risky for a business's day-to-day operations. Stablecoin is an answer to this concern.

Stablecoins are digital assets or cryptocurrencies that, unlike other forms of cryptocurrency, maintain a stable value. This lets businesses using stablecoins receive the benefits of lower fees and faster transactions without the volatility and risk of other cryptocurrencies.

In this guide, we’ll walk you through what stablecoins are, how they solve the biggest pain points of traditional and crypto payments, and why they’re becoming an essential tool for modern business. We’ll also spotlight Slash as a banking platform,¹ offering our own stablecoin, USDSL, and stablecoin integration with USDC and USDT.² Seamlessly unified alongside traditional banking and financial management features, Slash lets you keep up with new digital infrastructures without uprooting your whole financial stack.

What is a stablecoin?

A stablecoin is a digital asset and type of cryptocurrency designed to maintain a stable value. Where other forms of cryptocurrencies like Bitcoin experience major price fluctuations and volatility based on market swings, stablecoins maintain a stable value by being pegged to a reference asset, commonly a fiat currency like USD, commodities like gold, or other cryptocurrencies.

In practice, stablecoins function like a digital dollar and offer both digital and traditional banking capabilities. For instance, on one hand, stablecoins are native to blockchain environments, meaning they’re decentralized and can move with the global qualities of crypto.

On the other hand, stablecoins are backed with real-world collateral, making them a better tool for fiat-related transactions. For businesses, this means that you can use stablecoins for familiar financial activities like paying vendors or authorizing international payments, while also gaining the advantages of faster settlements, lower fees, and easier integration with digital workflows.

How do stablecoins work and how do they maintain their value?

Stablecoins maintain their stability through a process called pegging, wherein the value of 1 stablecoin is tied to the value of 1 other, more stable asset. This peg is often to a fiat currency like USD but may also tie to a physical asset like gold. Popular stablecoins for US and US-affiliate businesses include USDC (USD Coin) and USDT (USD Tether), two stablecoins that are pegged 1:1 to USD.

Because every stablecoin issued matches a corresponding asset, there is a process of creating a stablecoin called “minting”. Minting is the process of bringing something onto chain. For example: USDT is issued by Tether. Let’s say they want to issue $100 worth of stablecoin. In simple terms, this means that Tether will mint $100 of USD by placing this money into a reserve as a collateral store of value before authorizing 100 USDT on chain. The value of $100 can then be used, traded, or paid via USDT stablecoin.

If, however, Tether or another stablecoin holder wishes to redeem their stablecoin for cash collateral, this process is known as “burning”. Burning will remove stablecoin tokens from circulation and release that amount from reserves.

This process can look different for different types of stablecoins. For example, crypto-collaterized stablecoins will mint reserves of other crypto assets and algorithmic stablecoins will mint and burn automatically in order to keep the value of the stablecoins stable. Let’s break down these different types further for a clearer understanding:

Types of stablecoins

There are multiple types of stablecoins differentiated by what they’re pegged to. This gives them unique capabilities for business transactions, like offering easier integrations with traditional fiat currency-based banking or popular cryptocurrencies like Ethereum. Here’s an overview of the different types:

Fiat-collateralized stablecoins

Fiat-collateralized stablecoins are tokens backed by fiat currencies like USD, EUR, or JPY. There are many fiat-collateralized stablecoins, but the most common are USDT (Tether) and USDC (Circle), which are pegged 1:1 to USD.

This type of stablecoin comes with myriad benefits for businesses, including easier global transactions without the need to move through banks that tack on fees and slow down your cash flow. Additionally, fiat-collateralized stablecoins can often be integrated into your digital banking systems. If you’re using Slash, for example, you have access to send and transfer money using USDSL, USDT, and USDC, effectively allowing you to send money globally with fewer delays and fees, all while staying organized alongside your other fiat-based financial services.

Crypto-collateralized stablecoins

Crypto-collateralized stablecoins are tokens pegged to another cryptocurrency. While these other currencies are often volatile, collateralized crypto is typically over-collateralized for stablecoin purposes. This means that the amount of crypto held in reserve exceeds the amount of stablecoin on chain, ensuring that any drastic price fluctuations don’t affect the value of the stablecoin.

Popular crypto-collateralized stablecoins include DAI and LUSD (Liquidity USD), with both offering stablecoins pegged to Ethereum, one of the most popular cryptocurrencies, as collateral. For businesses already familiar with crypto and blockchain environments, crypto-collateralized stablecoins can make it easier to use familiar currencies without the volatility risks.

Algorithmic stablecoins

Algorithmic stablecoins make use of algorithms to monitor and maintain the supply of stablecoins, ensuring that their value stays stable against fluctuating demand.

Algorithmic stablecoins can be broken into sub-categories like fractional-algorithmic or hybrid stablecoins and two-token models, both of which offer a response to historical risks of purely algorithm-designed stablecoins by integrating the benefits of algorithms with fiat or crypto-collateralized stablecoins. An example of this is FRAX, which utilizes partial collateralization and algorithmic controls.

Commodity-backed stablecoins

Commodity-backed stablecoins follow a traditional model of money collateral, similar to the USD’s original store of value in gold. This type of stablecoin is tokenized to represent a certain, stable amount of a physical commodity such as gold. While this may experience price fluctuations, it can be beneficial for investors and businesses seeking easier access to commodities without dealing in physical ownership.

Why stablecoins matter to small businesses

Stablecoins are digital tokens that can act on behalf of real money or commodities. For businesses, this means the familiarity of traditional fiat banking while also integrating with blockchain and offering access to crypto-native benefits, including easier and faster transactions, without hidden bank fees, delays, or holiday breaks.

For small businesses, this means your team can move and scale faster with fewer roadblocks. Additionally, global capabilities mean that even if you’re not operating in the US, you can send payments in US stablecoin and transact with US entities without expensive foreign exchange fees or bank delays.

Some ways you may see tangible benefits of stablecoins:

Faster payments
International transactions
Holding value in a volatile market

With stablecoins and crypto growing in scale, integrating now can have further benefits in getting you familiar with crypto environments. This transition can be daunting, however, and many tools, such as Slash, are built with familiar fiat and traditional banking tools alongside stablecoin integration, so you can begin the process of developing your digital tokens now.

Benefits and risks of stablecoins

Stablecoins, like other forms of fiat or cryptocurrency, have particular benefits and risks involved:

Benefits:

Fast, low-cost international transfers. Businesses can send and receive payments across borders in minutes, often at significantly reduced transfer costs and without bank delays. Compared to ACH or wire transfers, this means you can save cash on transactions and hours waiting on bank approvals.
Stable value for crypto transactions. Unlike Bitcoin or Ethereum, stablecoins aren’t volatile currencies. Instead, they’re pegged to assets like fiat currencies (USD), making it a stable currency fit for familiar business operations: payroll, vendor payments,and daily transactions.
Easy access to DeFi platforms or interest-bearing accounts. DeFi or decentralized finance platforms use smart contracts that replace traditional financial intermediaries like traditional banks. By holding stablecoins, businesses can access decentralized platforms and blockchains for lending, trading, and more, without traditional regulators and centralized bodies.
24/7 accessibility outside of traditional banking hours. Bank closures and holidays in the US can affect your ability to make fast payments when you need them. Stablecoins let you quickly pay a vendor in Asia even if it’s Labor Day in the US, saving you time and money with lower foreign exchange rates.

Risks:

Regulatory uncertainty. Though decentralized and running on blockchain, there are still regulatory uncertainties around stablecoins. While not inherently detrimental to their value, these uncertainties can still affect the risks associated with stablecoins.
Counterparty or reserve risk. Stablecoins' value is maintained by pegs to real collateral in cash reserves, treasuries, etc. If issuers don’t maintain their reserves, then stablecoins can become at risk.
Lack of deposit insurance (unlike bank accounts). Stablecoin holdings lie outside FDIC-insured bank networks and accounts, making them liable to risks. Digital banking platforms like Slash can be helpful in ensuring you are only keeping money in stablecoin when it is beneficial to you.
Tech and wallet management complexity. Stablecoins and crypto involve a learning curve that can be confusing for first-time users. Good news, you’re already on the right track by reading this article! Additional support through platforms like Slash can help you ease into the crypto space with integrated fiat and crypto financial management.

The future of stablecoins and how Slash helps your business stay ahead

Stablecoins are a quickly evolving medium for exchange. Their benefits as a crypto-native digital asset and as a potential fiat-collateralized token make them helpful tools in navigating an increasingly digital ecosystem, without completely turning away from traditional banking.

With new laws like the GENIUS Act in 2025 and crypto buzz swirling, it’s beneficial for your business to get into crypto and stablecoins now for better financial results in the future. However, making this jump can be hard, and Slash is here to help by integrating your fiat and traditional banking with crypto integrations and stablecoin abilities. Here’s what Slash can help you do:

Slash USDSL. USDSL is a dollar-denominated stablecoin designed for business use, backed 1:1 by U.S. Treasuries and cash equivalents, and designed to be redeemable 1:1 for USD. Slash also supports receiving USDC and USDT.
Global USD. Slash lets you send money in real-time, without hidden bank fees or delays, using stablecoin USDC and USDT integrations. For international and small businesses, this means you can move your money faster and smarter, without traditional limitations.
Corporate cards. For everyday transactions, corporate cards let you spend while earning cashback, letting you save on spend.³
Accounting Integrations. Slash integrates with QuickBooks and Xero, letting you keep track of all your payments and transaction histories, both crypto-based and fiat.
One dashboard. All of Slash’s offerings are accessible via one intuitive dashboard. That level of ease makes your financial management smoother, faster, and less prone to errors.

Slash is changing the game for modern financing. If your business is developing without Slash, you're missing out on crypto integrations and stablecoin savings. Start an account and learn more about how you can save time, money and sanity with Slash at slash.com.

Frequently asked questions

What is the best stablecoin?

There is no “best” stablecoin, and each serves unique needs and offers its own variations. Stablecoins can work better or worse for your business depending on what fiat or other assets are pegged to the coin. If you’re using Slash, USDC and USDT will let you transact in real-time, across borders, through a USD-pegged stablecoin.

Is stablecoin a Bitcoin?

No, stablecoin is not Bitcoin. Bitcoin is a unique form of cryptocurrency with its own blockchain and mining structure. Unlike stablecoins, Bitcoin is extremely volatile, with regular and sometimes drastic price fluctuations.

How to choose a stablecoin?

Choose a stablecoin based on the features that you will be using it for. For instance, if you are a US organizatioon or dealing with many US organziations, using a USD pegged fiat-collateralized stablecoin like USDC or USDT will be helpful in moving and transferring your USD. Slash offers integration with these stablecoins, allowing even non-US entities to transact in USD.

Is stablecoin worth a dollar?

In some cases, yes. USD-pegged stablecoins have a 1:1 ratio with 1 stablecoin having equal value to 1 US dollar.

¹ Slash Financial, Inc. is a financial technology company and is not a bank. Banking services provided by Column N.A., Member FDIC.

² Cryptocurrency conversion, transfer, and custody services are provided by Bridge, not by Column, N.A. or Slash. Cryptocurrency is not custodied by any bank, is not FDIC-insured, may fluctuate in value, and is subject to loss. Terms and conditions apply.

³ The Slash Platinum Card is a Visa® charge card issued by Column N.A., pursuant to a license from Visa U.S.A. Approval is subject to eligibility. Payment of account balance is due in full daily. Monthly membership fees may apply. Card purchases may be eligible for cashback, see https://www.joinslash.com/legal/cashback-terms for more information.