Stablecoins: A History from BitUSD to Tether, DAI and USDC
Stablecoins try to hold a steady value, usually one US dollar. Trace their history from 2014 to today, and learn how they work and where they have failed.
Most cryptocurrencies move in price from day to day, which makes them awkward for payments and accounting. Stablecoins try to fix that by tracking the value of another asset, almost always the US dollar. Today they are used for trading, transfers and payments, and their short history includes both useful design and serious failures.
The early attempts
One of the first stablecoin designs was BitUSD, launched in 2014 on the BitShares platform by Dan Larimer. It was backed by the platform's own token held as collateral. The same year, a project called Realcoin launched on the Omni protocol, which runs on top of Bitcoin, and was renamed Tether in November 2014. Each Tether token was to be backed one-to-one by US dollars held in reserve.
Three main designs
| Type | How it keeps its value | Examples |
|---|---|---|
| Fiat-backed | Issuer holds cash and similar reserves against tokens | Tether (USDT), USDC |
| Crypto-collateralised | Smart contracts lock more crypto than the value of tokens issued | DAI from MakerDAO, launched in late 2017 |
| Algorithmic | Code adjusts supply or uses a linked token to defend the price | TerraUSD, which collapsed in 2022 |
DAI works differently from both. Users lock collateral such as ether in MakerDAO smart contracts and can mint DAI against it, while the system requires the collateral to be worth more than the DAI issued, so that price falls do not leave the system undercollateralised. Early stablecoin use grew mainly as a trading tool, letting traders move into a dollar-like asset on an exchange without withdrawing to a bank.
Tether and the question of reserves
Tether became the largest stablecoin and a key trading tool on exchanges. It has also been the subject of long-running scrutiny about what is actually held in reserve. In 2019 the New York Attorney General sued the company and its affiliated exchange Bitfinex over the handling of funds. In 2021, Tether settled with the New York Attorney General, paying 18.5 million dollars, and agreed to publish regular reports on its reserves. The same year it settled with the US Commodity Futures Trading Commission for 41 million dollars. Tether did not admit or deny the findings in the New York settlement. Tether now publishes attestation reports, which are less detailed than a full audit.
USDC and regulated issuers
USD Coin, or USDC, was launched in 2018 by Centre, a consortium founded by Circle and Coinbase. It emphasised regular reserve reports and relations with regulated institutions. Other regulated stablecoins launched around the same time, including Paxos and Gemini dollar products.
How a stablecoin can break
Even a fully backed stablecoin can briefly lose its peg. In March 2023, when Silicon Valley Bank failed, Circle disclosed that it held about 3.3 billion dollars of USDC reserves at the bank. USDC dropped well below one dollar for a short time, and then recovered after US authorities guaranteed the bank's depositors and Circle confirmed access to the funds.
The algorithmic design is riskier. TerraUSD relied on a connection with a sister token and on market confidence. In May 2022 it lost its peg and never recovered, an event covered in a separate article.
Regulation
- European Union. The Markets in Crypto-Assets regulation introduced rules for stablecoin issuers, with provisions applying from mid-2024.
- United States. After years of proposals, a federal stablecoin law known as the GENIUS Act was signed in 2025, setting requirements for issuers around reserves and disclosure.
- Elsewhere. Several other jurisdictions, including Japan and Singapore, have created licensing regimes for stablecoin issuers.
Reserves, redemption and networks
Fiat-backed issuers describe their reserves in categories such as cash, bank deposits, short-term government securities and similar instruments. How much detail they publish and how often differs. An attestation is a limited review at a point in time, while a full audit examines a company's financial statements more broadly. Redemption terms also differ: some issuers allow only certain customers to redeem directly for dollars, while everyone else relies on exchanges to trade the token near one dollar.
The same stablecoin can exist on several blockchains. USDT, for example, circulates on Ethereum, Tron and others, and a token sent on the wrong network may not reach its destination. When you pay an invoice, always choose the network that the invoice specifies. If you are unsure about a payment, ask first through our contact page, where support is available in 17 languages.
Why businesses use them
For merchants, stablecoins can avoid the price swings of other crypto between the moment a customer pays and the moment the merchant converts to local currency. For cross-border transfers, they can be faster than some traditional rails. The risks are the issuer's reserves, legal status, and the specific blockchain used. A stablecoin is not a bank deposit, and in most places it carries no deposit insurance.
A practical lesson for site owners
When you accept crypto, it helps to know what the customer is paying with. Zebra Hosting accepts USDT and many other coins through Cryptomus, so customers can pay with a stablecoin if they prefer a steady value. The products and checkout options are on the hosting page.
