What stablecoins are
A stablecoin is a digital token designed to hold a steady value against a reference asset, most often the US dollar and sometimes the euro or another currency. Most stablecoins in commercial use are issued by a company that promises to redeem tokens for the reference currency and holds reserve assets, such as cash and short-dated government securities, to back that promise.
Other designs exist. Some stablecoins are backed by other digital assets held as collateral in smart contracts. Others have tried to hold their value through algorithms alone, a model that has failed badly in the past. For business treasury, fiat-backed stablecoins from established issuers are what most firms encounter, and they are the focus of this guide.
A stablecoin is a claim on its issuer or on a reserve structure. It is not a bank deposit, and it does not normally carry deposit insurance. That basic fact shapes most of the risks discussed below.
How businesses use stablecoins
Businesses meet stablecoins in a handful of recurring situations:
- Receiving payments: clients in the digital asset sector, and increasingly elsewhere, prefer to pay invoices in stablecoins because transfers settle on-chain at any hour.
- Paying counterparties: some suppliers, contractors and partners ask to be paid in stablecoins, particularly in markets where banking is slow or expensive.
- Settlement between firms: trading firms and digital asset businesses settle obligations with each other in stablecoins instead of wiring fiat.
- Bridging into and out of digital assets: businesses that hold other digital assets often use stablecoins as an intermediate step before converting to fiat.
- Short-term holding: some firms hold stablecoin balances for operational reasons, such as funding expected on-chain payments.
In each case, the business usually needs fiat eventually. Stablecoins sit between a commercial event and a bank account, and the treasury question is how long the business is comfortable holding them in between.
Issuer risk
The value of a fiat-backed stablecoin depends on the issuer's ability and willingness to redeem it at par. That depends on several factors:
- Reserve quality: what the reserves are made of, where they are held and whether they are sufficient to cover all tokens in circulation.
- Transparency: how often the issuer publishes reserve reports and whether they are examined by an independent accountant.
- Redemption terms: who can redeem directly with the issuer, the minimum amounts, fees and timing. Many holders cannot redeem directly and rely on exchanges or providers for liquidity.
- Legal structure: whether reserves are held in a way that protects token holders if the issuer fails, and what claim a holder actually has.
- Operational and banking relationships: issuers depend on banks and custodians for their reserves, and problems at those institutions can affect the token.
A business holding stablecoins should be able to say which issuer stands behind each token it holds, what that issuer publishes about its reserves and how it would turn the tokens into fiat in practice.
Depeg risk
A depeg occurs when a stablecoin trades meaningfully away from its reference value. Depegs can happen when markets doubt the reserves, when a bank holding reserves runs into trouble, when large holders rush to exit or when liquidity on exchanges dries up. Several well-known stablecoins have depegged at various times, some briefly and some permanently.
Illustrative example: a business holds 500,000 units of a dollar stablecoin to pay a supplier next week. News emerges about the issuer's banking partner, and the token trades at 0.96 dollars for a day. If the business must pay that day, converting would leave it 20,000 dollars short. If it can wait and the token recovers, the loss may be temporary. If the token does not recover, the loss is permanent.
The practical lessons are to avoid holding stablecoins for longer than needed, to understand which tokens have the deepest liquidity and clearest redemption paths, and to have a plan for what the business would do if a token it holds started trading below par.
Regulatory risk
Stablecoin regulation is developing quickly and unevenly. In the European Union, the Markets in Crypto-Assets Regulation, known as MiCA, sets rules for issuers of stablecoins referencing a single official currency and for those referencing other assets, including authorisation, reserve and redemption requirements. Service providers in the EU must consider whether a token is compliant before offering it, and some tokens have become less available to EU users as a result.
Other jurisdictions are introducing their own regimes, and rules on which stablecoins regulated firms may handle, and on what terms, continue to change. For a business, regulatory risk shows up in practical ways: a provider may stop supporting a particular token, a counterparty may no longer be able to accept it, or a bank may ask more questions about stablecoin-derived funds.
Keeping holdings in tokens that regulated providers in the business's main markets support, and checking that position periodically, reduces the chance of being caught with an asset that suddenly becomes hard to use.
Regulatory change also affects counterparties. A supplier in one country may be able to accept a particular token while a supplier in another cannot. Before agreeing to pay or be paid in a stablecoin, confirm that both sides can lawfully hold it and convert it in their own jurisdictions, and record that check alongside the contract.
Operational and counterparty risks
Beyond the token itself, businesses face risks in how they hold and move stablecoins. Sending to the wrong address or on the wrong network usually cannot be reversed. Private keys can be lost or stolen. Smart contracts can contain flaws. Many stablecoins also include freeze functions that allow the issuer to block tokens at particular addresses, which is useful against theft and sanctions evasion but means tokens received from a problematic source could become unusable.
Controls that help include whitelisted withdrawal addresses, dual approval for transfers, test transfers before large payments, clear rules on which networks the business uses for each token and screening of counterparties' addresses before sending or accepting funds.
Converting stablecoins to fiat
Converting stablecoins to fiat through a regulated provider follows the same broad steps as any digital asset conversion. The business is onboarded, registers and verifies the wallets it will send from, explains the source of the stablecoins, requests a quote and sends the tokens. The provider screens the transaction on-chain, applies the travel rule where relevant and pays fiat to the business's own bank account.
Some points are specific to stablecoins. The business should confirm which tokens and which networks the provider accepts, because the same stablecoin may exist on several blockchains. Conversions into currencies other than the token's reference currency involve an FX element, for example a dollar stablecoin converted to euros. And because stablecoins are often received as commercial payments, the source evidence is usually an invoice matched to an on-chain receipt.
Accepting stablecoin payments from customers
A business that invoices in stablecoins should set the terms clearly on the invoice: which token, which network, the exact amount and the receiving address. Ambiguity causes real losses, because a payment sent on the wrong network may be unrecoverable. Many businesses generate a fresh receiving address per customer or per invoice, which makes matching receipts to invoices much simpler.
Before accepting a payment, it helps to know who is paying. A customer who has been through the business's own onboarding, and whose sending address is known, is a very different proposition from an unknown wallet. Screening the sending address, either through an analytics tool or through the conversion provider, reduces the chance of receiving tokens linked to illicit activity, which could later be frozen by the issuer or held by a provider.
Illustrative example: a consultancy invoices a client 25,000 in a dollar stablecoin on a named network. The client pays from an address registered during onboarding. The consultancy records the transaction hash against the invoice the same day and converts the balance to fiat within the week, in line with its holding policy.
A simple stablecoin treasury policy
Businesses that deal with stablecoins regularly benefit from a short written policy. It might set out which tokens the business will accept and hold, which networks it uses, the maximum balance and holding period before conversion, who can approve transfers, how wallets are secured, how counterparties are screened and what to do if a token depegs or a provider stops supporting it. Reviewing the policy every few months keeps it aligned with regulatory and market changes.
Records to keep
Stablecoin activity should be recorded as carefully as bank activity. Keep, for each receipt and payment, the date, token, network, amount, counterparty, transaction hash and the commercial document behind it. For each conversion, keep the trade confirmation, rate, fiat proceeds and the related bank credit. Keep wallet ownership evidence, screening results for significant transactions and any correspondence with providers about held or queried transfers.
Accounting and tax treatment of stablecoins varies between jurisdictions. Businesses should agree an approach with their accountants and apply it consistently, including how they value balances at period end.
General information only
This article is general information about how businesses use stablecoins and the risks involved. It is not investment, tax or legal advice, and it does not recommend any particular stablecoin, issuer or holding strategy.
CCYFX converts between fiat and major digital assets, including widely used stablecoins, for verified businesses, with on-chain screening and travel rule compliance. For more detail, see our digital assets service.
