A digital token designed to hold a stable value against a reference asset, typically a national currency. The stability is a claim on an issuer, not a property of the token: the issuer holds reserves and undertakes to redeem. United States and European law define the instrument by that redemption obligation rather than by the peg. From January 2027 the question of which stablecoins a service provider may lawfully handle acquires fixed dates and a licence test.
The definition that carries legal weight
Two definitions circulate and they do not say the same thing. The market definition describes behaviour: the token trades close to its reference. The statutory definitions describe an obligation.
Under the GENIUS Act (Public Law 119–27, codified at 12 U.S.C. 5901 et seq., enacted 18 July 2025), a payment stablecoin is a digital asset that is, or is designed to be, used as a means of payment or settlement, whose issuer is obliged to convert, redeem or repurchase it for a fixed amount of monetary value, and which represents — or creates the reasonable expectation — that it will hold a stable value against that fixed amount. National currencies, bank deposits and securities are carved out of the definition. The Act also closes a classification argument that ran for years: payment stablecoins are neither securities for the purposes of the federal securities laws nor commodities under the Commodity Exchange Act.
The European definitions in Regulation (EU) 2023/1114 (MiCA) work the same way from a different starting point. They split the category by what the token references and by what the issuer owes on redemption.
Carry forward the common element. In both regimes the identifying feature is an identified issuer that owes redemption. Price behaviour is evidence that the obligation is being met; it is not the definition. A token with no issuer owing anything sits outside both definitions, whatever its price does.
The categories, and why two tokens at 1.00 are not the same instrument
| Category | What it references | What the issuer owes on redemption | Where the category is defined |
|---|---|---|---|
| Fiat-referenced, single currency | One official currency | Face value in the reference currency, on request | US: payment stablecoin, 12 U.S.C. 5901(22). EU: e-money token (EMT), MiCA Art. 49 |
| Asset-referenced | A basket, a commodity, or a mix that may include currencies | Funds equivalent to the market value of the referenced assets, or delivery of those assets | EU: asset-referenced token (ART), MiCA Art. 39 |
| Crypto-collateralised | Digital assets held in protocol contracts, usually over-collateralised | Nothing owed by an issuer; the mechanism is contractual code, and the collateral is itself volatile | Outside the fiat-referenced categories |
| Algorithmic | A supply rule, with no reserve behind it | Nothing | Fails the statutory definition, which requires an issuer obliged to convert, redeem or repurchase |
The distinction most often missed is par against market value. An EMT holder’s right under Article 49 runs to face value in the reference currency. An ART holder’s right under Article 39 runs to funds equivalent to the market value of the referenced assets, or to delivery of those assets. A token referencing a commodity is therefore an ART in the EU rather than an EMT, and its redemption right is a market-value right. Two tokens quoted at the same figure can differ in who owes the redemption, in what that redemption is denominated, under which regime the issuer is supervised, and in which jurisdictions a service provider may lawfully offer them.
How issuance and redemption work
- Subscription. A purchaser transfers national currency to the issuer or to an authorised distributor.
- Mint and first transfer. The issuer creates the token and transfers it out. Treasury’s August 2026 proposal would define issue, for these purposes, as the issuer’s first transfer — directly or indirectly, including by crediting an account — where it results in someone other than the issuer having the right to use, transfer, convert, redeem or repurchase the token. A token minted but held in the issuer’s own treasury would not, on that reading, yet have been issued.
- Reserve. Subscription proceeds go to a reserve. The GENIUS Act requires backing on at least a one-to-one basis, bars rehypothecation of reserve assets, and requires monthly public disclosure of reserve composition with executive certification. MiCA requires the reserve to be segregated from the issuer’s own estate.
- Circulation. Tokens move between addresses without the issuer as a party to each transfer. The issuer nonetheless retains the ability to act on specified tokens, because both regimes require it to.
- Redemption. A holder presents tokens; the issuer pays and removes them from circulation. This is the step where the two European categories diverge, per the table above.
- Reissuance. Treasury’s proposal treats a later transfer of a token the issuer has taken back as a new issuance, whether or not the issuer burned it in the interim.
One feature of step 5 is worth isolating, because it is where the instrument most often fails to behave the way its definition implies. The redemption right that defines a stablecoin is not always exercisable by whoever holds the token. Treasury’s proposal notes that some are redeemable, as a technical matter, only by persons in contractual privity with the issuer — distributors and market makers — rather than by every holder. For everyone else the exit is not redemption at all. It is a sale into the secondary market at whatever the secondary market is paying at that moment.
What it costs, and what sets the timing
Four components, and no verifiable figure attaches to any of them in the abstract: each is issuer-, operator- and route-specific.
The conversion spread is taken by whoever exchanges the token for national currency, and it is the largest component in most payment routes. The issuer’s redemption terms set a second: minimum redemption size, any fee, and the settlement window. MiCA compresses it for EMTs: redemption is at par value on request, and fees may not exceed the cost of executing the redemption. Network transfer fees are a third, small and chain-dependent. The fourth is not priced at all but determines exposure: the interval between transfer and fiat settlement. Whoever holds the token across that interval carries the movement in it, and that is the only window in a converted payment where the peg is a live question rather than a label.
What it produces as evidence
On the issuer side, the disclosure set is a reserve composition report, published monthly under the US framework with executive certification, and a periodic third-party report on the reserve. Whether that report is an attestation or an audit opinion is worth reading off the cover page rather than assuming: an attestation states what an independent party observed at a stated moment, which is a narrower assertion than an opinion on the fairness of financial statements.
On the receiving side of a payment, the record is different and more useful. What documents a converted stablecoin payment is the conversion record and the screening record produced by the operator that handled it, bound to the transaction by an order reference. The token quantity is not the record. The settled amount is.
What goes wrong
The peg breaks. The secondary market price diverges from the reference. Whoever holds the token at that moment carries the divergence. If redemption at par is available and being honoured, the gap is arbitrage and closes; if redemption is suspended or gated, the secondary price is the only price there is, and the holder’s position is worth what a buyer will pay, not what the reference says.
The issuer fails. Where the reserve is segregated from the issuer’s estate, the holder’s claim runs against the reserve. Where it is not, the holder is an unsecured creditor of a failed company, ranking with every other unsecured creditor. MiCA addresses this directly by requiring segregation and by requiring issuers to hold a plan for orderly redemption on failure, under Articles 47 and 55. The distinction between those two positions is the whole of what the holder gets back.
A lawful order immobilises the tokens. Under the GENIUS Act a permitted issuer may issue only if it has the technological capability to comply, and will comply, with the terms of any lawful order — defined to include an order requiring a person to seize, freeze, burn, or prevent the transfer of stablecoins it has issued, specifying the tokens or accounts with reasonable particularity. Tokens sitting at an address caught by such an order do not move, and the holder’s remedy is legal, not technical.
Availability is withdrawn in a jurisdiction. This is now on a calendar. From the GENIUS Act’s expected effective date of 18 January 2027, a digital asset service provider generally may not offer, sell or otherwise make available in the United States a payment stablecoin issued by a foreign issuer unless that issuer has the technological capability to comply with, and will comply with, the terms of any lawful order and any reciprocal arrangement between the United States and its home jurisdiction. From 18 July 2028 a service provider generally may not offer or sell any payment stablecoin to a person in the United States unless it was issued by a permitted payment stablecoin issuer. Section 3 of the Act is stated to have extraterritorial effect where the conduct involves an offer or sale to a person located in the United States, and knowing participation in unlawful issuance carries a fine of up to $1 million per violation, imprisonment of up to five years, or both. Treasury’s implementing proposal for that section was published on 18 August 2026 at 91 FR 53368, with comments due 19 October 2026.
The transfer goes to the wrong place. Wrong chain, wrong contract address, wrong recipient. There is no recall and no chargeback. What the sender holds afterwards is a claim against whoever received it, if that person can be identified at all.
Terms it is confused with
Bank deposit. A claim on a bank, within deposit-guarantee scope where one applies. The US definition expressly excludes deposits from the payment stablecoin category, and no deposit insurance attaches to a stablecoin.
Electronic money. Not a rival category in the EU but an overlapping one: an EMT is electronic money under MiCA, issued by a credit institution or an electronic money institution.
Central bank digital currency. A liability of a central bank. A stablecoin is a liability of a private issuer, and the difference is the credit standing behind the claim.
Tokenised deposit, tokenised money-market fund. Different legal wrappers with different holder rights. Neither is a payment stablecoin, and the distinction survives the fact that all three may settle on the same rails.
Tokenised gold. A token referencing a metal price and issuer-held metal. In the EU this is an asset-referenced token, so redemption runs to the market value of the referenced asset or to delivery of it, not to par — see tokenised gold.
What the term means to the party being paid
Every published definition of a stablecoin is written for the holder, because the holder is who the issuer is selling to. Almost none is written for the party on the receiving end of a payment, and that party’s question is a different question.
A seller paid through a payment gateway does not hold the token. The operator screens the transaction and the originating address, converts, and settles the seller in national currency against an order reference. Between the moment the buyer sends and the moment fiat arrives, the seller is exposed to two things — the rate at which the conversion is done, and whether the operator will accept that particular token at all — and to neither of them for long. The peg, which is the whole subject of the market definition, is the property the seller is least exposed to, because the seller never carries the token across a period in which it could move.
What replaces the peg as the operative question is a set of three, and all three are issuer-level: whose claim the token is, whether it can be immobilised by order, and whether a service provider may lawfully handle it in the relevant jurisdiction. The regulatory turn of 2026 is that all three are becoming answerable in advance, from public sources, on stated dates — which is a change in kind, not in degree. Acceptance policy at a gateway used to be a liquidity judgement. It is becoming a licence question.
The consequence for treasury work is specific. A stablecoin is not fungible with another stablecoin for operational purposes even when both hold the same reference and both trade at the same figure. A policy that names an amount and a reference currency but does not name the issuer and the regime it is supervised under has not specified the instrument, and the first time that matters will be the first time a route is withdrawn rather than the first time a price moves. For the same reason, an incoming converted payment is documented on the receiving side as a settled fiat amount bound to an order reference, with the operator’s conversion and screening records attached — the form the payment arrived in is a fact about the route, not about the receivable.
Where a bullion purchase is funded this way, the counterparty pays through a gateway operated by a licensed digital-asset platform in BTC, ETH, USDT or USDC; the platform screens, converts and settles in national currency, and the seller receives fiat only, holds no digital assets, and issues no token or claim on metal. The mechanics of that route are set out on Buy Gold with Crypto; the conversion leg itself is covered under off-ramp.